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1) You are planning to purchase a house for $180,000. You will pay 20% down...

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Accounting

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1) You are planning to purchase a house for $180,000. You will pay 20% down payment and take a mortgage loan for the remaining 80%. You could get a 3/1 ARM amortized over 15 years at 3.9 % or a fixed 15 year FRM loan at 5.3%. The expected interest rate of the ARM from years 4 to 5 is 7.5%. You will live in the house for five years, and after that you expect to sell the house for $200,000 and pay off the remaining loan balance. Assume that the upfront costs and insurance under both loan options are the same MARR is 10% per year compounded monthly, which loan would be a better choice? Consider the NPW effects of the payments, and ignore the ta:x Fill out the following table. Also explain the equations you used to calculate the monthly mortgage payment for ARM in months 1-36 and in months 37- 60 as well as for FRM in months 1-60. Month number ARM FRM 0 (down payment) 1 to 36 (monthly mortgage payment) 37 to 60 (monthly mortgage payment) 60 (payment from selling the house 60 (payment to pay off remaining loan balance) NPW

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