Finance Project

Math 1030
Name: Olga Merino & Tanner Thomas
Buying a House

Select a house from a real estate booklet, newspaper, or website. Find something
reasonable between $100,000 and $350,000. In reality, a trained financial
professional can help you determine what is reasonable for your financial situation.
Take a screenshot of the listing for your chosen house and attach it to this project.
Assume that you will pay the asking price for your house.

The listed selling price is $274,900.

Assume that you will make a down payment of 20%.

The down payment is $54,980. The amount of the mortgage is $219,920.
Ask at least two lending institutions for the interest rate for both a 15-year and a 30-year
fixed rate mortgage with no points or other variations on the interest rate for the loan.

Name of first lending institution: America First Credit Union.

Rate for 15-year mortgage: 3.375%. Rate for 30-year mortgage 4.125%.

Name of second lending institution: Wells Fargo.

Rate for 15-year mortgage: 3.625% Rate for 30-year mortgage 4.125%.

Assuming that the rates are the only difference between the different lending
institutions, find the monthly payment at the better interest rate for each type of
mortgage.

15-year monthly payment: $1558.70 . 30-year monthly payment $1065.84.

These payments cover only the interest and the principal on the loan. They do not
cover the insurance or taxes.

To organize the information for the amortization of the loan, construct a schedule that
keeps track of: (1) the payment number and/or (2) the month and year (3) the amount of
the payment, (4) the amount of interest paid, (5) the amount of principal paid, and (6)
the remaining balance.
15-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)

1. . 4/22/2017 $ 1,558.70 $ 618.53 $ 940.18 $ 218,979.82

2. . 5/22/2017 1,558.70 615.88 942.82 218,037.00

50. . 5/22/2021 1,558.70 479.81 1,078.89 169,521.09

90. . 9/22/2024 1,558.70 351.54 1,207.17 123,783.75

 120. . 3/22/2027 1,558.70 245.42 1,313.29 85,946.19

150. . 9/22/2029 1,558.70 129.97 1,428.74 44,782.41

180. . 3/22/2032 1,558.70 4.37 1,549.96 $0.00. .

total ------- $ $ $ ---------

219,920.00 60,646.84 219,920.00

Use the proper word or phrase to fill in the blanks.

The total principal paid is the same as the total payment amount.
The total amount paid is the number of payments times 180 (12x15)
The total interest paid is the total amount paid minus principal paid.

Use the proper number to fill in the blanks and cross out the
improper word in the parentheses.

Payment number 1 is the first one in which the principal paid is greater than the interest
paid.

The total amount of interest is $159,273.16 (more or less) than the mortgage.

The total amount of interest is 72.42% (more or less) than the mortgage.

The total amount of interest is 27.58% of the mortgage.

30-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
 1. . 4/22/2017 $ 1,065.84 $ 755.98 $ 309.87 $ 219,610.13

2. . 5/22/2017 1,065.84 754.91 310.93 219,299.20

60. . 3/22/2022 1,065.84 686.44 379.41 199,310.97

120. . 3/22/2027 1,065.84 599.69 466.15 173,990.19

240. . 3/22/2037 1,065.84 362.18 703.66 104,658.17

300. . 3/22/2042 1,065.84 201.31 864.54 57,697.32

360. . 3/22/2047 1,065.84 3.65 1,058.54 $0.00. .

total ------- 219,920.00 163,783.01 $ ---------

219,920.00

Payment number 240 is the first one in which the principal paid is greater than the
interest paid.
The total amount of interest is $56,136.99 (more or less) than the mortgage.

The total amount of interest is 25.52% (more or less) than the mortgage.

The total amount of interest is 74.48% of the mortgage.

Suppose you paid an additional $100 a month towards the principal

The total amount of interest paid with the $100 monthly extra payment would be
$55,675.59 in the 15 year loan.

The total amount of interest paid with the $100 monthly extra payment would be
$135,229.70 in the 30 year loan.
 The total amount of interest paid with the $100 monthly extra payment would be
$4,971.25 (more or less) than the interest paid for the scheduled payments only
in the 15 year loan.

The total amount of interest paid with the $100 monthly extra payment would be
$28,553.31 (more or less) than the interest paid for the scheduled payments
only in the 30 year loan.

The total amount of interest paid with the $100 monthly extra payment would be
8.2% (more or less) than the interest paid for the scheduled payments only in
the 15 year loan.

The total amount of interest paid with the $100 monthly extra payment would be
17.43% (more or less) than the interest paid for the scheduled payments only in the
30 year loan.

The $100 monthly extra payment would pay off the mortgage in 13 years and 11
months; thats 13 months sooner than paying only the scheduled payments in
the 15 year loan.

The $100 monthly extra payment would pay off the mortgage in 25 years and 5
months; thats 55 months sooner than paying only the scheduled payments in
the 30 year loan.

Summarize what you have done and learned on this project. Because this is a

math project, you must compute and compare numbers, both absolute and

relative values, that havent been compared above. Statements such as a lot

more and a lot less do not have meaning in a Quantitative Reasoning class.

Make the necessary computations and compare (1) the 15-year mortgage payment to

the 30-year mortgage payment, (2) the 15-year mortgage interest to the 30-year

mortgage interest, (3) the 15-year mortgage to the 30-year mortgage with an extra
payment, and (4) the 15-year mortgage to the 30-year mortgage with a large enough

extra payments to save 15 years and have the loan paid off in 15 years. Also, keep in

mind that the numbers dont explain everything. Comment on other factors that must be

considered with the numbers when making a mortgage.

The difference in the 15-year payment and the 30-year payment is due to the fact

that the loan payments will be distributed over a longer period of time. In the 15 year

payments, the amount of the total loan is condensed into 180 months. This makes each

payment on a 15yr $492.86 greater than a payment on a 30yr loan that is distributed

over 360 months and is $492.86 less each month.

Through research I have learned the reasoning behind the higher interest

rate on a 30 yr loan and the smaller interest rate on a 15 yr loan. It is less risk and costs

the bank less money to loan on a 15 yr mortgage. Another reason for the high interest

rate on a 30 yr loan is articulated well in an article by Investopedia.

The government-supported agencies that finance most mortgages impose

additional fees, called loan level price adjustments, which make 30-year mortgages

more expensive. (Mandelbaum)

With this information, it makes sense as to why the 30yr total loan interest is

much higher, $103,136.21 more money to be exact, than the total interest on a 15yr

loan. Also, the amount of time you have the loan affect how much interest is paid. The

longer the loan the more interest that is paid by the borrower.

On the 15yr loan with the extra $100 on each payment the interest paid would be

$4,971.25 less, and it would be paid off 13 months sooner. The 30yr loan with the extra
$100 monthly payment would be $28,553.31 less, and would be paid off 55 months

sooner. This is because the extra $100 per payment would be going directly to the

principle. For example, on the first payment on the 15 yr loan with extra $100, $1040.18

is paid to principle, and $618.53 to interest. The same 15yr loan without the extra $100,

$940.18 is paid to principle and still the same $618.53 is paid to the interest.

The 15-year mortgage to the 30-year mortgage with large enough extra

payments to save 15 years and have the loan paid off in 15 years. Paying $576.00 extra

each month would pay off a 30yr mortgage in 15yrs. In total you would make $

103,349.85 worth of early payments on the loan. A total of $ 75,285.86 would be paid in

interest.
Works Cited

Mandelbaum, R. Julius. Comparison of a 30-Year vs. a 15-Year Mortgage. 23

February 2017. Web Article . 22 March 2017.