You can afford to pay up to $2000 in payments every month for housing and have $

Question

You can afford to pay up to $2000 in payments every month for housing and have $80,000 in savings (you don't anticipate and increase in income/savings). Which of the following mortgages would allow you to buy the most expensive property? A 25 year FRM with 2.5% contract interest rate and .9 L . A 30 year fully amortizing FRM with 4.2% contract interest rate and .85 LTV A 30 year FRM with 4.2% contract interest rate, .9 LTV and a balloon payment of $80,000 at the end of the 5th year. A 30 year mortgage with an interest only period of 5 years at a fixed contract rate 3% and 0.95 LTV.

Explanation / Answer

`Current Value of saving = $80,000

You can use current saving in down payment. So, if LTV ratio is high then use can purchase more expensive property. Again, you take interest only loan at lower rate then also you can purchase more expensive property.

So, a 30 year mortgage with an interest only of 5 year period at fixed contract rate 3% and 0.95 LTV.

Option (D) is correct answer.

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