You want to buy a house. You have found the house you like and have agreed to purchase the house for $300,000. You go to the bank to get a loan and have decided that a 30 year mortgage loan is the best loan duration. What do you think the interst rate will be on your loan given the following data?
"Real" interest rate given current macro econmomic conditions = 2.0%
The inflation rate forecasted for the future is = 1.5%
Unfortunately, your credit score sucks and you represent a bigger risk to the bank. The added "risk" rate is = 6.0% (only 2% added risk rate if good credit rating)
Estimated bank mortgage rate = Given the 30 year rate above, calculate your monthly house payment (assume monthly compounding).
Calculate your monthly house payment if you had a good credit score.
What is the total difference in payments over the life of the loan btween a "good" rate and a "bad" rate?
Would the rate be higher or lower on a 15 year mortgage? Why?