You Pay 10% Down on a Home with a Purchase

question 97

Essay

You pay 10% down on a home with a purchase price of $280,000.Your bank will loan the remaining balance of $252,000 at 8.23% APR.You have an option to make annual payments or monthly payments on the loan.Both options have a 30-year payment schedule.What are the annuity payments under the annual plan? What are the annuity payments under the monthly plan? In terms of the total cash outflows and the effective cost of borrowing,briefly compare both plans.

---

Definitions:

Opportunity Cost

The value of the best alternative that is forgone when a decision is made to pursue a particular course of action.

Expected Profit Rate

The forecasted return on an investment, calculated based on potential outcomes and their probabilities.

Net Inventory Investment

The change in the total value of inventories in an economy during a specific period.

Positive

An attribute or condition that reflects an increase, improvement, or favorable outcome.