Reference no: EM133512396
Case Study: Mr and Mrs Brown have been diligently saving for a deposit to purchase their own home, as they anticipate the need for a family-friendly residence in the near future. After happily renting an inner-city two-bedroom unit for five years, they now find themselves at a point where they wish to transition from the rental market to homeownership. However, with various opinions and advice from different sources, the Browns are feeling overwhelmed and uncertain about the borrowing process. In order to seek guidance, they approach a home loan banker.
The Browns are delighted to have saved $120,000 as a deposit for their first home. Assuming that the Browns have two loan options:
Option A: $700,000 loan for 30 years at a rate of 6.5% p.a. 5-year Fixed Rate.
Option B: $600,000 loan for 25 years at a rate of 6% p.a. Variable Rate.
Question a. Do the Browns need mortgage insurance? Provide an explanation for each option.
Question b. The interest rate is expected to increase or remain stable in the future. Advise the Browns on the benefits and costs of the loan options and make a suitable recommendation with justifications.
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