You have a choice between two identicalproperties – Property A and Property B.
Property A: Purchase Price = $300,000
Down payment = $60,000
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Mortgage = $240,000, fully amortizing
Term = 20 years, Payments = end of month, Int Rate = 10.8%
Property B: Purchase Price = $320,000
Down payment = $80,000
Assumed Mortgage = $200,000 (fully amortizing)
Remaining Term = 20 years, Payment = $1,799.45/month, Rate = 9%
In addition to the assumable mortgage, you have a 2nd fully amortizing mortgage
Mortgage Amount $40,000
Term = 20 years, end of month payments.
Rate = 13.2%,
Note that even though the properties are identical, their sale prices are different; and require different down payments. A requires $60,000 whereas B requires $80,000
1. Given that the total loan amount is same for both A and B, with no preference, other than financing, which would you choose? Why?
2. Assume that the seller of B, provides you a 2nd mortgage at the same rate as assumable mortgage for 20 years for $40,000. Now, which will you choose? Why?