You have a choice between the following two identical properties: Property A is priced at
$150,000 with 80 percent financing at a 10.5 percent interest rate for 20 years. Property B is
priced at $160,000 with an assumable mortgage of $100,000 at 9 percent interest with
20 years remaining. Monthly payments are $899.73. A second mortgage for $20,000 can be
obtained at 13 percent interest for 20 years. All loans require monthly payments and are fully
a. With no preference other than financing, which property would you choose?
b. How would your answer change if the seller of Property B provided a second mortgage for
$20,000 at the same 9 percent rate as the assumable loan?
c. How would your answer change if the seller of Property B provided a second mortgage for
$30,000 at the same 9 percent rate as the assumable loan so
that no additional down payment
would be required by the buyer if the loan were assumed?
aMonthly Payment for 100000PMTTotal Monthly Payment A B 120000200000899.73$1,198.06$234.32$1,198.06 $1,134.05 Property B would be preferred as it has lower monthly payment bStill the…