lt Lake Sittals SQ College Math 1050 Mortgage Project Matteratics Deparment rams David Park peed: 4-22-15 4 In this project we will examine a home loan or mortgage. Assume that you have found a home for sale and have agreed to a purchase price of $201,000. Down Payment: You are going to make a 10% down payment on the house. Determine the amount of your down payment and the balance to finance. Down Payment 20,100. soneage Amount (80, 100.22 Part I: 30 year Mortgage ‘Monthly Payment: Calculate the monthly payment for a 30 year loan (rounding up to the nearest cent) by using the following formula. Show your work. [PMT is the monthly loan payment, P is the mortgage amount, ris the anaual percent rate forthe loan in decimal, and ¥is the number of years to pay off the Ioan.] For the 30 year loan use an annual interest rate of ASTS%. pur =? (5) ~ (+a) ‘Show work bre 044.95 1 PUT = 180, qo0( 2280 249. 98125 > et) 0. 9551 0.04975 dant teerpaa 9y8.34 823% Monty Promesttoc 30 arnmgses $e 168. 35 [Note that this monthly payment covers only the interest and the principal on the loun. I does not ‘cover any insurance or taxes on the property. Amortization Schedule: In order to summarize all the information regarding the amortization of ‘loan, construct schedule that keeps track of the payment number, the principal paid, the interest, and the unpaid balance. A spreadsheet program is an excellent tool to develop anamortization schedule. We can useaa free amortization spreadsheet on the web. ‘The web address is; hup/vww bretwhissel,ucVamortzationamertize.html. Enter the amount of the loan, ic the selling price minus the down payment, the Interest rate, and the appropriate number of years. Check the box to show the schedule, ‘Amorizaton Schedule wily peynet fr 130 year maxipap 468-52 (Not: fs smo an Po eas flea om your cao, check your mmer! Total interest paid over 30 year 162, 906 "= ‘otal amount paia #348, 606. Notice thatthe amount ofthe payment that goes towards the principal and the amount that goes towards the interest are not constant. What do you observe about each of these values? 25 The ameunt & Principal goes ap the amount of interest goes cowl at appoximatly the same Cate change. Nusberef ist payment vben mor of poymeat goes toward princi tan iteret_/ As already mentioned, these payments are for principal and interest only. You will also have ‘monthly payments for home insurance and property taxes. In addition, i is helpful to have money left over for those litle lncures lke electricity, running water, and food, AAs a wise home ‘owner, you decide that your monthly principal and interest payment should not exceed 35% of your monthly take-home pay. What minimum monthly take-home pay should you have in order to meet this goal? Show your work for making this calculation, p= wet > P26. 24286 O- ini onthly take home tay should be $226.4 Tn onder ° vot spond mote than 35% of take hone pay Minimum monty take tome pay = 2966, ©Its also important to note that your net or take-home pay (after taxes) is less than your gross pay (before taxes). Assuming that your net pay is 73% of your gross pay, What minimum gross annual salary will you need to make to have the montbly net salary stated above? Show your ‘work for making this ealeulation. ewes Pe 2766.28 > p. 3740.01952('2)= 45980. 2344 0.23 the minimum grass eal Salary fou need aN your net pay 1 3% of your gins Pay 1% 45480 Minimum gros annua atry = 95, 486. 22— Part Il: Selling the House Let's suppose that after living inthe house for 10 years, you want to sell. The economy experiences ups and downs, but in general the value of realestate 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 of 4%. Use the full purchase price asthe principal. Show your ‘Show work here. fz 201,0000% "> 4 = 299,956. 7642 201,000 (1-49 1924648) the value of the home 10 years ater Purchasing swith ‘a continuoas rabekest HES 1% is Weel, Be. %& ‘alu ofhome 10 ean ater pcr ff 20, 856, 2Assuming that you can sell the house for this amount, use the following information to calculate ‘your gains or losses: Seting price of your house 4299, 856, %— Original down payment 3f 20, (00,22 Mortgage pid over the ten years f(y 22. the pty tace on yourlom arc year fh 19,086, 2 Do you gain or lose money over the 10 years? How much? Show your amounts and summarize your results: ined money oVel The (0 years 297,950.26 You gain Yeo ¥ 20,100 293 339.48 $16,518. dpllats is The Profit: 11b,202 19.28 iy of the dow Payment, The 16 bs by Fading the sum y! pa ose i Mortgage pard ove the Ten years and the 29333618 Vayolk amount oF the mortgage, you ean Subtract feat From your sell price #2 Sind Part ITT:_15 year Mortgage your polit. Using the same purchase price and down payment, we will investigate a 15 year mortgage. ‘Monthly Payment: Calculate the monthly payment for a 15 year loan (rounding up to the nearest cent) by using the following formula, Show your work! [PMT is the monthly loan payment, Ps the mortgage amount, ris the annusl percent rate for the loan in decimal, and ¥is, the number of years to pay off the loan.] For the 15 year loan use an annual interest rate of = Pr) reer ‘Show work here. 1238 ) 96125 sii re i PuT = (80,900 St) op LE aia ? ong) 1208) (+ ate) (qos. 622 _ any ert rss eximene~ 1905, 22Use the amortization spreadsheet on the web again, this time entering the interest rate and ‘number of payments for a15 year loan, "Amortization Schedule moothly payment fora 15 year mortgnge M905. 2 (Note this is more than? or cents diferent rom your ealultion, cheek your numbers! Total interest paid over 15 years 92, (26. Total amount paid 253,026. aie ‘Suppose you paid an addtional $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 payments towards the principal, include it in the monthly payment and leave the number of payments box blank.) Lenath of time to pay off loan with aditioal payments of $100 per month (ZS-aueath or [2,38 yea! Total iret paid over the ie of te loan with addtional $100 monthly paymens PIB 24 Total amount paid with additional $100 monthly payments 265, 6 Compare this total amount paid to the total amount paid without extra monthly payments. How much more or less would you spend if you made the extra principal payments? you would spend H7412-™ dollars less by paying 4 (00.% olollars ‘extra a month over The cours? Of 16 years. "Number of first payment when more of payment goes toward principal than interest Part II: Reflection Did this project change the way you think about buying a home? Write one paragraph stating 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. This project changed the way F Think about The money Spent on buying * home. when EF bought my home L only at the lowest payment a month L wish T knew mote al The payment options years age, because This prject s me That Paying a Few hourdied dollais more & month can change Thirty years payments into thirteen Lt TEL hed hone This TL would have payed my house a couple of yeals ag.