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%


Please select the best answer from the choices provided

A
B
C
D
Mark this and return

Answer 1

First rule out option C — it requires 20% down and the Williams can only afford 10%.

Compute monthly payment M = P * (r / (1 - (1+r)^-n)) where P = loan amount, r = monthly rate, n = months.

a) 15 yr, 5% down, 5.5%:
- Down = 0.05·323,000 = 16,150 → P = 306,850
- r = 0.055/12, n = 180 → M ≈ $2,508

b) 30 yr FHA, 3.5% down, 6.25%:
- Down = 11,305 → P = 311,695
- r = 0.0625/12, n = 360 → M ≈ $1,918

d) 30 yr, 10% down, 6%:
- Down = 32,300 → P = 290,700
- r = 0.06/12, n = 360 → M ≈ $1,743

Lowest monthly payment (among options they can afford) is option d.

Answer: D