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Coll6eeMath 1050 Mortgage Project


Due date:
M athematics DeYartrnent

you have found a home In this project we will examine a home loan or mortgage. Assume that for sale and have agreed to a purchase price of $201-'Q00' the Down Payment: You are going to make a l}o/odown payment on the house. Detemrine amount of your down payment and the balance to finance'

Down Palmtent

Mortgage

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Part

the monthly payment for a 30 year loan (rounding up to the using the following formula. Show your work IPMT is the monthly loan nearest """t}fy is tne *oigug" u-oooi r is the arurual percent rate for the loan in decimal, and palment, off the loan.] For the 30 year loan use an anaual interest rate of years

Mr"thly Pry-*t,

I: 30 year Mortqase
Cffiil" t i"V
f

Iis

tfre number of

4.975%.

PMT: ----;--*l
Show workhere

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Mcathly Payment for a 30 year mortgage


Note that this monthly payment covers only the interest and the principal on the loan. It does not c$ver any inswance or taxes cn the propertyamortization Schedule: In order to summarize all the information regarding the amortization of paid, the a loano construct a schedule that keeps track of the payment number, the principal interest, and the unpaid balance. A spreadsheet program is an excellent tool to develop an

amortization schedule. We can use a &ee amortization spreadsheet on the web. The web address is: http:llwwrv.bretwhissel.net/amortizationlamolt'rze.htm1. Enter the amount of the loan, i.e. the selling price minus the down payrnent, the interest rate, and the appropriate number of years, Check the box to show the schedule.

Amortization Sshedule monthlypayment for a 30 year *rneu1r C(nt ( 9{ (Note: if this is more than2 * rr tfl,t differeat from your calculationSilk your numters!)

rotal interest paid over

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Notice that the amount of the payment that goes towards the principal and the amount that goes towanrds the interest are not constant. What do you observe a-bout each of these values?

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As already mentioned, these paynents are for principal and interest only. you will also have monthlypaymeots for home insurance and property taxes. In addition, it is helpful to have money left over for those little luxuries like eleckicity, running water, and food-. As a wise home owner, you decide that your monthly principal and interest payment should not exceed 35Yo of your monthly take-home pay. What minimum monthly take-ho1g-p1y slotl=d you havq in oqger to meet this goal? Show your work for making this calculation.

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Minimum monthly take home

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It is also important to note that your net or take-home pay (after taxes) is less than your gfoss pay (before taxes). Assuming that your net pay is73Yo of your gfoss pay, what minimum gross annual salary will you need to make to have the monthly net salary stated above? Show your work for making this calculation.
Show work here

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Minimum sross annual salary

: 45

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Part II: Selling the House Lefs suppose that after living in the house for

10 years, you want to sell- The economy experiences ups and downs, but in general the value of real estate increases over time. To calculate the value of an investment such as real estate, we use continuously compounded interest.

Find the value of the home 10 years after purchase assuming a continuous interest rate af 4ilo. Use the full purchase price as the principal. Show your work.
Show work here.

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Value of home

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years after purchase

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Assuming that you can sell the house for this amourrt, use the follcwing inf,ormation to calculate your gains or losses: Selling price of your house

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Original down

payme*

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years |

Mortgage paid over the ten years


The principal balance on your loan after ten

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Do you gain or lose moaey over the 10 years? How much? Show your amounts and summarize

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Part

III:

15 year Mortgage

Using the same purchase price and down payment, we

will investigate a 15 yearmortgage-

Monthly Payment: Calculate the monthly payment for a 15 year loan (rounding up to the noaresr cent) by using the foltowing formula. Show your work! IPMT is the monthly loan payment, P is the mortgage amount, r is the annual percent rate for the loan in decimal, and thi number of years to pay offthe loan.j For the 15 year loan use an annual interest rate of
4.735%.

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PMT

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Monthly Payment for a 15 year mortgage :

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Use the amortization spreadsheet on the web again, this time entering the interest rate and number of payments for a 15 year loan.

Amortization Schedule moathly payn'rent for a 15 year mortgage flCb ,:i O (Note: if this is more tban2 or 3 cents different from your calculation, check your numbers!)

Totalinterestpaidover 15
Total amount

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interest

Number of first payment when more of payment goes toward principal than

Suppose you paid an additional $100 towards the principal each month. How long would it take to pay off the loan with this additional payment and how will this affect the total amount of interest paid on the loan? [If you are making extra palmtents towards the principal, include it in the monthlypayment and leave the number of payments box blank.]

Lengthoftimetopayoffloanwithadditionalpaymentsof $100
Total iaterestpaid overthe life of tle loan with additioaal $100 Total amormt paid with additional $100 month ty puy *rn

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Compare this total amount paid to the total amollnt paid without extra monthly payrrents. How much more or less would you spend if you made the exka priucipal payments?

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Part

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III: Reflection

'Write one paragraph stating Did this project change the way you think about buying a home? what ideas changed and why. If this project did not change the way you think, write how this project gave further evidence to support your existing opinion about buying a home. Be specific.