Reference no: EM13257076
Application of time value of money principles can help you make decisions on loan alternatives. This exercise requires you to compare three mortgage alternatives using various combinations and points. Points on a mortgage refer to a payment that is made up front to secure the loan. A single point is a payment of one percent of the amount of the total mortgage loan. If you were borrowing $200,000 a single point would require an upfront payment of $2,000.
When you are evaluating alternative mortgages, you may be able to obtain a lower rate by making an upfront payment. This comparison will not include an after-tax comparison. When taxes are considered, the effective costs are affected by interest paid and the amortization of points on the loan. This analysis will require you to compare only before-tax costs.
Bloomberg provides a mortgage calculator that allows you to compare the effective costs on alternative mortgages. You are considering three alternatives for a $250,000 mortgage. Assume that the mortgage will start in December, 2002. The mortgage company is offering you a 6% rate on a 30-year mortgage with no points. If you pay 1.25 points, they are willing to offer you the mortgage at 5.875%. If you pay 2 points, they are willing to offer you the mortgage at 5.75%.
1. What are the mortgage payments under the three alternatives?
2. Which alternative has the lowest effective cost?
3. Can you explain how the effective rate is being calculated?
|
How does scholfield honda rate on the social responsibility
: How does Scholfield Honda rate on the social responsibility pyamid? Do they meet all the criteria for a socially responsible company?
|
|
What is the size of the final image
: Two lenses, the first with focal length 10.0 cm and the second with focal length -12.5 cm, are separated by 20.0 cm. What is the size of the final image and what is its position
|
|
Difference between audit and auditing
: Define auditing, what is the difference between audit and auditing? Explain the important techniques of auditing.
|
|
Marketing planning
: Marketing Planning
|
|
Which alternative has the lowest effective cost
: When you are evaluating alternative mortgages, you may be able to obtain a lower rate by making an upfront payment. This comparison will not include an after-tax comparison.
|
|
Blanks with the formal command form of the verbs
: Fill in the blanks with the formal command form of the verbs. Don Adrián, (levantarse) de ese sillón. Amigos, no (ser) tan antipáticos con mi novia. Hijos, (ir) a comprar los postres. Señorita Amalia, (abrir) la puerta. Niños, no (quitarse) las c..
|
|
Harvey is liable for the tort of the wrongful death
: Harvey is liable for the tort of the wrongful death of the clean-up worker if keeping a Taipan is determined to be an ultrahazardous activity.
|
|
What is meant by healthcare financing in its broad sense
: What is meant by healthcare financing in its broad sense? What impact does financing have on the healthcare delivery system? In broad terms, financing includes the concepts of financing, insurance, and payment. In basic terms, financing enables peopl..
|
|
What is the minimum oscillation frequency for this circuit
: A 8.0mH inductor is connected in parallel with a variable capacitor. The capacitor can be varied from 180pF to 320pF. What is the minimum oscillation frequency for this circuit
|