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# Darshan Singh

Professor Butcher

MATH 1030

4 March 2017

Finance Project

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

The down payment is: \$45,000 The amount of the mortgage is: \$180,000

## Name of first lending institution: US Bank

Rate for 15-year mortgage: 3.75% Rate for 30-year mortgage 4.5%

## Name of second lending institution: Bank of America

Darshan Singh

Professor Butcher

MATH 1030

4 March 2017

Rate for 15-year mortgage: 3.625% Rate for 30-year mortgage 4.375%

## 15-year monthly payment: \$1297.87 30-year monthly payment: \$898.71

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

15-year mortgage:

## Payment Payment Payment Interest Paid Principal Remaining

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

Total \$0

## The total principal paid is the same as the loan value.

The total amount paid is the number of payments times the monthly payment.
The total interest paid is the total amount paid minus the principal paid.
Darshan Singh

Professor Butcher

MATH 1030

4 March 2017

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 \$126,384.09 (more or less) than the mortgage.

The total amount of interest is 70.23% (more or less) than the mortgage.

## The total amount of interest is 29.77% of the mortgage.

30-year mortgage:

## Payment Payment Payment Interest Paid Principal Remaining

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

## 360 1/1/2047 898.71 3.26 895.45 0

Total \$0

Payment number 171 is the first one in which the principal paid is greater than the interest paid.
The total amount of interest is \$36,463.15 (more or less) than the mortgage.

The total amount of interest is 20.26% (more or less) than the mortgage.

## The total amount of interest is 79.74% of the mortgage.

Darshan Singh

Professor Butcher

MATH 1030

4 March 2017

## 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 \$113,726.23.

The total amount of interest paid with the \$100 monthly extra payment would be \$29,810.62
(more or less) than the interest paid for the scheduled payments only.

The total amount of interest paid with the \$100 monthly extra payment would be 20.76% (more
or less) than the interest paid for the scheduled payments only.

The \$100 monthly extra payment would pay off the mortgage in 24 years and 7 months; thats
65 months sooner than paying only the scheduled payments.

Summary:

If your monthly budget doesnt have room for a \$1297.87 monthly payment for the 15

year compared to \$898.71 with the 30 year the lower payment might allow you to get into a

## house and build equity.

The 15 year compared to the 30 year saves \$89,920.94 in interest. That is a significant

number, but if you cant afford the 1297.87 monthly payment of the 15 year if might be worth

paying, over the course of 30 years to get a house. With a house, compared to renting, at least

## you would be building equity and an investment.

If you can afford the 30 year with the extra payment, 989.71 a month, you could save

\$29,810.62 in interest compared to the scheduled payments on the 30 year. Compared to the 15

year loans interest youd pay \$60,110.32 more to have 308.16 a month more in your budget. If

you could spend the money to make the \$1297.87 a month youd save this money. Once again,
Darshan Singh

Professor Butcher

MATH 1030

4 March 2017

it comes down to the flexibility you have in your monthly budget and some people dont have

## the extra \$308.16 or \$403.16 a month to pay the larger payment.

It would take a payment of \$1370 to pay off the 30 year loan in 15 years, \$471.27 more

than the regular scheduled 30 year payments and \$72.13 more a monthy than the 15 year loan.

Youd pay \$65,462.19 in interest on this accelerated payoff 30 year loan, compared to only

\$53,615.91 with the lower interest rate of the 15 year. It doesnt make any sense to have a higher

monthly payment, pay more interest and pay off the 30 year in an accelerated way.