1. Fixed Rate Mortgage VS Interest Only Option Team 4 Matthew Dwight Toan Duong Shane Carlson

2. Scenario #1: Fixed Rate Mortgage $300,000 Home Down Payment: $30000 5.70% Fixed Rate 30 years of paying the same payment - $18990/year

3. Scenario #2: Interest Only Option Same as Scenario #1 except: First 10 Years –Interest Only – $15390/year Last 20 Years – Fixed Rate Loan - $22970/year

4. Constants in Scenarios Fixed Output – Minimize Input Salary is estimated to be $55k/year + 3% each year for tax calculation Assuming house averages 9%/year return average over 30 years. House Future Value = ~ 4 Million. Tax breaks according to current federal law

5. Tax Breaks Incremental Tax Structure Taxable Income<$7500 a year 10% Tax $7500<Taxable Income<$29700 $750 plus 15% over $7500 … and so on. Mortgage Loan Interest Tax Break Taxable Income = Income – Interest On Mortgage More Income Means Better Mortgage Tax Break

6. Comparative Tax Break Interest Only Mortgage has $13700 more in tax savings

7. Net Present Worth Analysis Difference: ~$9000 Difference: ~$11000

8. Net Present Worth Analysis

9. Sensitivity To Salary Change

10. Sensitivity To Interest Rate Change

11. Conclusion Interest only options are economically reasonable Depends heavily on Minimum Acceptable Rate of Return. As salary goes up, interest only is better. As interest rates go up, fixed rate gets better. Very sensitive to government tax breaks

12. References www.bankrank.com www.interestonlyloans.com www.eloan.com