Buying a home
Part 1
| Assumptions: | |||||||
| USD | |||||||
| Cost of house | 300000 | ||||||
| Deed Tax | 4%Don't use plagiarised sources.Get your custom essay just from $11/page | ||||||
| Stamp Tax | 0.05% | ||||||
| Transfer Tax | 0.50% | ||||||
| Deposit | 30% | of purchase cost | |||||
| Repayment Period | 20 | Months reducing balance | |||||
| Loan Interest ® | 4.05% | ||||||
| Purchase cost = cost of house + Deed Tax + Stamp Tax + Transfer Tax | |||||||
| Purchase cost = 300,000 + (4%*300,000) + (0.05%*300,000) + (0.5% * 300,000) | |||||||
| Total Purchase costs = | 313650 | ||||||
| Deposit = 30%*300,000 = | 90000 | ||||||
| Balance after deposit = Total purchase costs – deposit | |||||||
| Balance after deposit = 313650 – 90000 = | 223650 | ||||||
| Installment = Loan Amount /((1-(1+r)^-n)/r) | |||||||
| Installment = Loan Amount /((1-(1+r)^-n)/r) = | 16529.502 | ||||||
| Loan Repayment Schedule | |||||||
| Month | Loan at Start | Installment | Interest | Principal | Loan at End | ||
| 1 | 223,650.00 | 16,529.50 | 9,057.83 | 7,471.68 | 216,178.32 | ||
| 2 | 216,178.32 | 16,529.50 | 8,755.22 | 7,774.28 | 208,404.04 | ||
| 3 | 208,404.04 | 16,529.50 | 8,440.36 | 8,089.14 | 200,314.91 | ||
| 4 | 200,314.91 | 16,529.50 | 8,112.75 | 8,416.75 | 191,898.16 | ||
| 5 | 191,898.16 | 16,529.50 | 7,771.88 | 8,757.63 | 183,140.53 | ||
| 6 | 183,140.53 | 16,529.50 | 7,417.19 | 9,112.31 | 174,028.22 | ||
| 7 | 174,028.22 | 16,529.50 | 7,048.14 | 9,481.36 | 164,546.86 | ||
| 8 | 164,546.86 | 16,529.50 | 6,664.15 | 9,865.35 | 154,681.51 | ||
| 9 | 154,681.51 | 16,529.50 | 6,264.60 | 10,264.90 | 144,416.61 | ||
| 10 | 144,416.61 | 16,529.50 | 5,848.87 | 10,680.63 | 133,735.98 | ||
| 11 | 133,735.98 | 16,529.50 | 5,416.31 | 11,113.19 | 122,622.79 | ||
| 12 | 122,622.79 | 16,529.50 | 4,966.22 | 11,563.28 | 111,059.51 | ||
| 13 | 111,059.51 | 16,529.50 | 4,497.91 | 12,031.59 | 99,027.91 | ||
| 14 | 99,027.91 | 16,529.50 | 4,010.63 | 12,518.87 | 86,509.04 | ||
| 15 | 86,509.04 | 16,529.50 | 3,503.62 | 13,025.89 | 73,483.16 | ||
| 16 | 73,483.16 | 16,529.50 | 2,976.07 | 13,553.43 | 59,929.72 | ||
| 17 | 59,929.72 | 16,529.50 | 2,427.15 | 14,102.35 | 45,827.38 | ||
| 18 | 45,827.38 | 16,529.50 | 1,856.01 | 14,673.49 | 31,153.88 | ||
| 19 | 31,153.88 | 16,529.50 | 1,261.73 | 15,267.77 | 15,886.11 | ||
| 20 | 15,886.11 | 16,529.50 | 643.39 | 15,886.11 | 0.00 | ||
Part 2
Answer One
The central bank of the country usually determines interest rates. The central bank sets the minimum or base lending rates. The other commercial banks or financial institutions should lend money according to the guidelines of the central banks. The mortgage industry is not an exception, and it should charge mortgage interest rates according to the acceptable limits of the central bank and relevant legislation of the land. In the last four months, the interest rates have been declining, as depicted in the table and graph below.
| Calendar | Actual Interest Rates | |||||||
| 11/20/2019 | 4.15% | |||||||
| 12/20/2019 | 4.15% | |||||||
| 1/20/2020 | 4.15% | |||||||
| 2/20/2020 | 4.05% |
| ||||||
The interest rates declined sharply in 2020. The trend is expected to continue in the future. The purpose of the reduction of the interest rate is to encourage more borrowers to request for a loan and purchase a house or make other capital investments. Studies indicate personal loans to be paid within a shorter period attract lower interest rates; however, the loan has to be used for indicated personal consumption, not investments. Otherwise, the rules and regulations will apply, and the borrower will be required to pay higher interest rates.
Answer 2
China previously was a socialistic country, and real estate started developing in the early 1990s. The interest rates have been below 7%, and currently, the rates are decreasing. This can be attributed to the republic encouraging more people to buy a home and accelerate economic development. Analyst forecast, the home interest rates will decline in the future and maybe stabilize below 4% margin.
Answer 3
Buying a home is a good investment plan. There are potential benefits that arise from purchasing the home. The buyer makes savings of the possible rental associated costs. The monthly rentals for the long-term will outweigh the costs of buying a house. Besides, having a home, you can lease it partially or fully. The buyer earns extra income associated with the rental facilities.
Moreover, the buyer will feel comfortable and enjoy the premises with his/her family. However, there can be downturns in purchasing the house. The government of China only allows a maximum lease of 70 years. After 70 years, the government can repossess the house and repurchase the house or lose ownership.
Furthermore, the government of China prohibits foreigners from purchasing a home, unless they meet certain conditions; a potential buyer must have stayed in China for at least one year and studying or working in the country. Therefore, a foreigner may not have a chance to own a house. If a Chinese buys a home, he/she will enjoy regular rental income.
Answer 4
A mortgage is a loan given for an individual to purchase or own a house. There are several financial institutions and housing finance companies that do offer mortgages to interested home buyers. The principal is the stated amount to acquire a house, and it does not include the interest to be paid during the loan repayment period. The principal usually consists of the initial amount plus associated costs in connection to the purchase of the home. Interest is the extra amount paid over the principal during the loan repayment period. Lenders can calculate interest based on either a straight line or a reducing balance bases. In a straight line, interest paid is equal for all the periods while in reducing balance method, interest paid is calculated based on the balance of principal. Installments include principal and interest, and it is equal for all the periods. Interest is the installment minus principal.
Answer 5
Apart from purchase costs, there are other factors to consider before buying a home. Some of these factors include favorable location, floor plan, home features, proximity to social amenities, and yield. Chinese would prefer to buy a home in well-known areas. The design of the layout of the floor can influence the potential buyer to buy a home. All home buyers prefer to be near hospitals and schools. The yield refers to the potential income or benefits to be realized from the purchased home.