Mackenzie has $10,000 available for a down payment on her dream house. The house cost $150,000 and she can borrow up to $150,000 with 5% interest.
Plan A:
Put $10,000 down and borrow the rest of the money at 5% with a 30-year mortgage.
Plan B:
Put $5,000 down and borrow the rest of the money at 5% with a 15-year mortgage.
Plan C:
Hank’s Bank is willing to “buy down” the interest rate. Hank’s Bank will lower the interest rate a full percentage point for $10,000 up front. This of course reduces her down payment to zero, so she would need to borrow the full $150,000 at 4% interest.
Guidelines:
Your assignment is going to be to write a short paper (one page or so) that explains to Mackenzie all the ramifications of the three different options she has in the purchase of her $150,000 dream house. Essentially the ramifications I am looking for include: the monthly payment, the total amount paid for the house, and the pros and cons of each option. Be sure to include everything paid when calculating the total amount paid for the house.
Your paper must be typed or neatly hand-written. Your paper should be mathematically sound and understandable to your audience. You will be graded on neatness, completeness, as well as clarity and accuracy.