Math1050MortgageProject

NameJessicaFindlay_______________Duedate:12/02/16
Inthisprojectwewillexamineahomeloanormortgage.Assumethatyouhave
foundahomeforsaleandhaveagreedtoapurchasepriceof$201,000.
DownPayment:Youaregoingtomakea10%downpaymentonthehouse.
Determinetheamountofyourdownpaymentandthebalancetofinance.
DownPayment$20,100

MortgageAmount$180,900

PartI:30yearMortgageMonthlyPayment:Calculatethemonthlypaymentfora
30yearloan(roundinguptothenearestcent)byusingthefollowingformula.
Showyourwork.[PMTisthemonthlyloanpayment,Pisthemortgageamount,r
istheannualpercentratefortheloanindecimal,andYisthenumberofyearsto
payofftheloan.]Forthe30yearloanuseanannualinterestrateof4.975%.
r
12
P( )PMT=

r 12Y
1(1+ )
12
PMT= (180,900) (0.04975/12)/1-(1+0.04975/12) ^12(30)
749.98/0.7745= $968.35

MonthlyPaymentfora30yearmortgage$968.35
Notethatthismonthlypaymentcoversonlytheinterestandtheprincipalonthe
loan.Itdoesnotcoveranyinsuranceortaxesontheproperty.Amortization
Schedule:Inordertosummarizealltheinformationregardingtheamortizationofa
loan,constructaschedulethatkeepstrackofthepaymentnumber,theprincipal
paid,theinterest,andtheunpaidbalance.Aspreadsheetprogramisanexcellent
tooltodevelopan

amortizationschedule.Wecanuseafreeamortizationspreadsheetontheweb.The
webaddressis:http://www.bretwhissel.net/amortization/amortize.html.Enterthe
amountoftheloan,i.e.thesellingpriceminusthedownpayment,theinterestrate,
andtheappropriatenumberofyears.Checktheboxtoshowtheschedule.
AmortizationSchedulemonthlypaymentfora30yearmortgage$968.35
(Note:ifthisismorethan2or3centsdifferentfromyourcalculation,checkyour
numbers!)
Totalinterestpaidover30years$167,706
Totalamountpaid$348,606

Noticethattheamountofthepaymentthatgoestowardstheprincipalandthe
amountthatgoestowardstheinterestarenotconstant.Whatdoyouobserve
abouteachofthesevalues?
Everypaymenttowardstheamountofinterestthatyoupaydecreasesandthe
amountofprincipalincreases.Atfirstitdoesntseemlikeitmakesmuchofa
difference,butovertimeyouwillseeahugedifference.
Numberoffirstpaymentwhenmoreofpaymentgoestowardprincipalthan
interest194
Asalreadymentioned,thesepaymentsareforprincipalandinterestonly.Youwill
alsohavemonthlypaymentsforhomeinsuranceandpropertytaxes.Inaddition,it
ishelpfultohavemoneyleftoverforthoselittleluxurieslikeelectricity,running
water,andfood.Asawisehomeowner,youdecidethatyourmonthlyprincipal
andinterestpaymentshouldnotexceed35%ofyourmonthlytakehomepay.
Whatminimummonthlytakehomepayshouldyouhaveinordertomeetthis
goal?Showyourworkformakingthiscalculation.
968.35/0.35= $2766.71
(2766.71)(0.35)=968.35

Show
workhere

Minimummonthlytakehomepay=$2766.71

Itisalsoimportanttonotethatyournetortakehomepay(aftertaxes)islessthan
yourgrosspay(beforetaxes).Assumingthatyournetpayis73%ofyourgross
pay,whatminimumgrossannualsalarywillyouneedtomaketohavethemonthly
netsalarystatedabove?Showyourworkformakingthiscalculation.
2766.71/0.73=3790.01
3790.01(12)
=45,480.23

Showworkhere.
Minimumgrossannualsalary=$45,480.23
PartII:SellingtheHouseLet'ssupposethatafterlivinginthehousefor10years,
youwanttosell.Theeconomyexperiencesupanddowns,butingeneralthevalue
ofrealestateincreasesovertime.Tocalculatethevalueofaninvestmentsuchas
realestate,weusecontinuouslycompoundedinterest.
Findthevalueofthehome10yearsafterpurchaseassumingacontinuousinterest
rateof4%.Usethefullpurchasepriceastheprincipal.Showyourwork.
A=Pe^rt
A=201,000e^ (0.04) (10) =$299,856.76

Showworkhere.
Valueofhome10yearsafterpurchase$299,856.76
Assumingthatyoucansellthehouseforthisamount,usethefollowing
informationtocalculateyourgainsorlosses:
Sellingpriceofyourhouse$299,856.76

Originaldownpayment$20,100
Mortgagepaidoverthetenyears$116,202
Theprincipalbalanceonyourloanaftertenyears$147,036.48
Do you gain or lose money over the 10 years? How much? Show your
amounts and summarize your results:
Since the selling price is $299,856.76, if we deduct the down payment and
the mortgage payments over the 10-year period, we are left with
$163.554.76. For the principal balance we have $147,036.48 left. This means
we would gain a total of $16,518.28.
20,100+116,202+147,036.48=$283.338.48
299,856.76-283,338.48= $16,518.28

PartIII:15yearMortgage
Usingthesamepurchasepriceanddownpayment,wewillinvestigatea15year
mortgage.
MonthlyPayment:Calculatethemonthlypaymentfora15yearloan(rounding
uptothenearestcent)byusingthefollowingformula.Showyourwork![PMTis
themonthlyloanpayment,Pisthemortgageamount,ristheannualpercentrate
fortheloanindecimal,andYisthenumberofyearstopayofftheloan.]Forthe
15yearloanuseanannualinterestrateof4.735%.
P(r)PMT=

1(1+r)

12

12Y

12

PMT= 180,900(0.04735/12)/1-(1+0.04735/12)^-12(15)
= 713.80/0.5078 =$1405.70

Showworkhere.
MonthlyPaymentfora15yearmortgage=$1405.70
Usetheamortizationspreadsheetonthewebagain,thistimeenteringtheinterest
rateandnumberofpaymentsfora15yearloan.
AmortizationSchedulemonthlypaymentfora15yearmortgage$1405.70
(Note:ifthisismorethan2or3centsdifferentfromyourcalculation,checkyour
numbers!)
Totalinterestpaidover15years$72,126
Totalamountpaid$253,026
Numberoffirstpaymentwhenmoreofpaymentgoestowardprincipalthan
interest5
Supposeyoupaidanadditional$100towardstheprincipaleachmonth.Howlong
wouldittaketopayofftheloanwiththisadditionalpaymentandhowwillthis
affectthetotalamountofinterestpaidontheloan?[Ifyouaremakingextra
paymentstowardstheprincipal,includeitinthemonthlypaymentandleavethe
numberofpaymentsboxblank.]
Lengthoftimetopayoffloanwithadditionalpaymentsof$100permonth
13.58yearsorabout163months
Totalinterestpaidoverthelifeoftheloanwithadditional$100monthlypayments
$64,713.29
Totalamountpaidwithadditional$100monthlypayments
$245,613.29
Comparethistotalamountpaidtothetotalamountpaidwithoutextra
monthlypayments.Howmuchmoreorlesswouldyouspendifyoumadethe
extraprincipalpayments?

$253,026$245,613.29=7412.71
Youwillsave$7,412.71

PartIII:Reflection
Didthisprojectchangethewayyouthinkaboutbuyingahome?Writeone
paragraphstatingwhatideaschangedandwhy.Ifthisprojectdidnotchange
thewayyouthink,writehowthisprojectgavefurtherevidencetosupport
yourexistingopinionaboutbuyingahome.Bespecific.
Yes,thisprojectdefinitelyhaschangedthewayIthinkaboutbuyingahome.I
learnedthatthefastersomeonepaysoffthedebtsandloans,theinterestdue
decreases.Itisalsoextremelyimportanttoknowwhatyourtakehomeincomeis
eachmonthandyear.ThiswillbeveryhelpfulforwhenIdecidetobuyahome.
Thisprojecthashelpedmegainmoreinsightonwhattheprocessofbuyinga
homereallyislike,andhowmuchyoucansaveifyouthinkwiselyandplanitout.