The Young household is looking at buying a house. The three houses they are looking at cost the following: $160,000, $190,000 and $210,000. They can pay up to $900 in monthly mortgage payments. They currently have $18,000 set aside for a down payment. Similarly to the Tremblay’s bank, the Youngs’ bank will add $40 to each mortgage payment if they put less than 20% down and an additional fee of $30 more to each payment if they put less than 10% down.
a. Which of these houses can they afford with a 30-year mortgage at an interest rate of 3.5%?
b. Which of these houses can they afford with a 15-year mortgage at an interest rate of 2.8%?
c. Which house do you think they should buy?