Sharon Fox decided to buy a home in Marblehead, Massachusetts, for $266 000. Her

Question

Sharon Fox decided to buy a home in Marblehead, Massachusetts, for $266 000. Her bank requires a 20% down payment Sue Willis, an attorney, has notified Sharon that besides the 20% down payment there will $21.00 146.00 39.00 credit In addition, there will be a transfer tax of 2% of the purchase price and a loan origination fee of 2% of the mortgage amount. Assume a 30-year mortgage at a rate of 10.5%. a. What is the initial amount of cash Sharon will need? (Do not round intermediate calculations. Round your answer to the nearest cent.) b. What is her monthly payment? (Do not round intermediate calculations. Round your answer to the nearest cent.) c. What is the total cost of interest over the life of the mortgage ?(Use 360 days a year. Do not round intermediate calculations. Round your answer to the nearest cent.)

Explanation / Answer

a. Following is the calculation of Initial Cash that Shanon will need.

$5,320.00

Note: Here it is assumed that all the above expenses are to be paid one time before getting mortgage as initial costs.

b. Calculation of Monthly Payment.

It is 30 Year mortgage, therfore total no. of months = 30*12= 360 months.

interest rate 10.5%

Formula for Calulating EMI= Mortgage * r *(1+r)^n/ (1+r)^n-1

here Mortgage = $ 2,66,000, r = 10.5/12 = 0.875%, n = total no of months = 360 months

Using all the above data in formula we get as follows=

$2,66,000*0.00875*(1+0.00875)^360 / (1+0.00875)^360-1

Solving this we get= $2,327.5* (1.00875)^360 / (1.00875)^359

Therefore the final answer will be = EMI = $2,433 per month.

c. Calculation of total cost of interest over the life of mortgage

=Total no. of Emi * EMI amount per month as calculated above. - Amount of Mortgage.

= (360*$2,433) - $2,66,000 = $8,75,880 - $2,66,000

= $6,09,880

Therefore total cost of interest over the period of 360 months = $6,09,880

Particulars Calculation Amount $ Recording of the Deed Given $21.00 A credit & appraisal report Given $146.00 Preparation of Appropriate documents Given $39.00 Transfer Tax @ 2% on Loan Amount $2,66,000 * 2% $5,320.00 Loan Origination fee @ 2% on Mortgage amount $2,66,000 * 2%

$5,320.00

Total Initial Costs $10,846.00

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