Question 1 Suppose you are a working professional in the U.S. You are thinking of taking out a mortgage loan to buy a house for your family. Look at the mortgage interest rate information online at...

Question 1

Suppose you are a working professional in the U.S. You are thinking of taking out a mortgage loan to buy a house for your family. Look at the mortgage interest rate information online at https://www.zillow.com/mortgage-rates/ or https://www.bankofamerica.com/mortgage/home-mortgage/ and find out which loan (e.g. 15- year FRM, 15-year ARM or 5/1 ARM) is the best for you. Work out your estimated monthly payment under different loan choices and the effective yield or cost of each. The aim is to apply the concepts and valuation methods in class to compare the various mortgage loans on the market. Make assumption where appropriate. (Please include excel calculation if excel is used)

a) Please choose a state and a city in the U.S to find a house for your household from www.Zillow.com Present the details of the subject property, including property type, title information if available, building age if available, etc. Justify the potential purchase price by comparing with comparable surrounding properties. Assume you earn the average income. Find the average income of a household in a particular industry in a State in the U.S. from relevant information resources. Comment on the affordability. Compare 4 mortgage options on bank of America home loan website or Zillow website, using both the effective yield method, and the incremental borrowing cost method.

b) You expect that you will sell your house after 5 years because you will either get a promotion at the company you currently work in and thus can buy a bigger house or find a job in another city. Will your choice in part a) be any different? Answer this question using both the effective yield method, and the incremental borrowing cost method.