Question

The Williams are buying a house that costs $323,000 and can afford a 10% down payment. If the Williams want the lowest monthly payment, which loan option would you recommend?
a.
15 year fixed, 5% down at a fixed rate of 5.5%
b.
30 year FHA, 3.5% down at a fixed rate of 6.25%
c.
30 year fixed, 20% down at a fixed rate of 5.75%
d.
30 year fixed, 10% down at a fixed rate of 6%

Answer 1

Answer: d.

Reason: They can only make a 10% down payment, so option c (20% down) isn’t available. Comparing the monthly principal & interest payments for the feasible loans:

- a) 15-yr, 5% down: loan = 323,000 − 0.05(323,000) = 306,850. At 5.5% for 180 months → ≈ $2,508/month.
- b) 30-yr FHA, 3.5% down: loan = 323,000 − 0.035(323,000) = 311,695. At 6.25% for 360 months → ≈ $1,918/month (not including FHA mortgage insurance).
- d) 30-yr, 10% down: loan = 323,000 − 0.10(323,000) = 290,700. At 6.00% for 360 months → ≈ $1,743/month.

Option d gives the lowest monthly payment (and avoids FHA mortgage insurance), so pick d.