Lumen OFM 1a, 08 pe Review Assessment Attempts Jewell, Parker Mortgage Lab Signature Assignment Started: 7/30/21, 10:38 pm Last Changed: 7/30/21, 11:52 pm Total time questions were on-screen: 68 minutes Due Date: Sat 7/31/21, 11:59 pm Score in Gradebook: 31/31 Grade is calculated on the best version of each question Scored attempt. Score; 31/31. Question 1. | Version 1*/1, Score: 9/9 Introduction: In this lab you will examine a home loan, also known as a mortgage. In Part | you will be computing various values associated with a 30 year loan. In Part If you will calculate values associated with selling the house after 10 years. In Part Itt you will be computing values associated with a 15 year loan and compare them to the 30 year loan values. in Part IV you will examine the effects of making extra monthly payments on the 30 year loan. | In Part V you will do a "Reflective Writing" that will accompany the lab and be submitted with the lab on your e-Portfolio. next. it is @ good idea to also keep a written account of the given values (e.g. original price of the house, annual interest rate, etc,) as you will be asked to refer back to these values as you go. Once you have "submitted" an answer to a question, you can click back and | forth between the parts if you need to, though you may need to click on "Reattemptthis | question" at the top of the page. Don't worry, your correct answers will be saved! | Warning! You can submit answers to make sure they are correct before proceeding to the | | Round all of your answers to the nearest cent when appropriate to do so. Some questions | are programmed to allow for slight variations in the answers due to rounding errors, BUT tpssohmumenieaning.camjessese2/abviowassoss.phpteid=63402Aald=S8870S64uldu0 Page tof 12aman ont 14, 8:04 PM |. itis important that you don't round values you are using in formulas. Only round your final answers. Part I Assume that you have found a home for sale and have agreed to a purchase price of $211500. Down Payment: Assume that you are going to make a 10 % down payment on the house. Determine the amount of your down payment and the balance to finance. a Monthly Payment: Calculate the monthly payment for a 30 year loan (rounding to the nearest cent, so rounding to two decimal places). For the 30 year loan use an annual interest rate of 4.95 % . First, express the annual interest rate as a decimal. | ‘The annual interest rate expressed as a decimal is Now use the loan formula to find the monthly payment, d. The loan formula solved for d Pal) ( -(1+ $) 2) Po is the original loan amount. ‘ris the annual interest rate in decimal form is the number of compounding periods in one year (sok = 12). Nis the length of the loan in years. (== ‘Assuming you make the monthly payment each month for 30 years, what will be the total Monthly Payment nps:fohm.dament 1 comjassess2/gbvlonessossphp2eides34028ares388705851d=0 Page 2 of 12‘umen ont yan, 3:08 Pu amount repaid? Find the total amount of interest paid over the 30 years. To do so, subtract the amount originally borrowed from the total payments. Total interest paid = $[vew2e Calculate your Income: As already mentioned, these payments are for principal and interest only. You will also have monthly payments for home insurance and property taxes, but for this lab you will ignore those. In addition, it is necessary to have income leftover for other expenses like electricity, water, food, and other bills. As a wise home owner, you decide that your monthly principal and interest payment should not exceed 35% of your monthly take-home pay so that you have plenty left over for those other expenses. What minimum monthly take-home pay (i.e. your monthly pay checks after taxes) should you earn in order to meet this goal? In other words, 35% of what monthly take-home pay is equal to your mortgage payment? Minimum monthly take-home pay = $ Itis 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, use your monthly take-home pay to find the minimum gross monthly salary will you need to afford this house. ‘= Now find the minimum annual gross pay you will need to afford this house. Mininmum annual gros pay = 8[a7080 ) Research: Do a search on the internet for the "average salary" of either your future profession or by your future college degree and compare it with your last answer. Make a note of it as you will need to comment on it in the Reflective Writing for this lab. Minimum monthly gross pay its: fone. umentearing comfassess2/abvlowassess php cid=52402Sald=8B870508ulc=0 Page 3 of 12tuen On yas, 5:08 Pee [Score Witt | Time spent on this version: 29.9 minutes. | Show all tries Question 2. Version 1*/1, Score: 8/8 Warning!You can submit answers to make sure they are correct before proceeding to the next. It ls a good idea to also keep a written account of the given values (e.g. original price of the house, annual interest rate, etc.) as you will be asked to refer back to these values as you go. Once you have "submitted" an answer to a question, you can click back and forth between the parts if you need to, though you may need to click on *Reattempt this question! at the top of the page. Don't worry, your correct answers will be saved! Round all of your answers to the nearest cent when appropriate to do so. Some questions are programmed to allow for slight variations in the answers due to rounding errors, BUT itis important that you don't round values you are using in formulas. Only round your final answers. Part II: Selling the House ‘Suppose that after living in the house for 10 years, you decide to sell it. The economy experiences ups and downs, but in general the value of real estate increases over time Recall the original purchase price (you can click back to Question 1 if you need to). Original purchase price (from Question 1) = S{asoo | i To approximate the future value of an investment such as real estate, you will use the compounded interest formula: r\ Nk Py =Po(1 + 2) w= Po(l tf This is just an approximation, so we'll use an annual compounding period (so, k = 1). Find the future value of the home 10 years after you purchased it assuming a 4% interest rate. Use the full purchase price of the home from the previous problem epson lumaolesring comfassass2fobviewacsess.chpeid=s240286l4=3887056auld=0 Page 4 0612Luman OHM yaa, 04 PM (Question 1) as the principal (or initial value, Pp) in the compound interest formula. Future value of home = $) 31307167 This "Future value" is the price you will sell the house for after you've owned it for ten years. Now you will answer the question of whether or not you have made or lost money with this investment. You will need several pieces of information in order to answer the question. You will need the amount of your down payment (from Question 1), the amount you paid toward the mortgage over ten years (your monthly payment from Question 1 times the number of payments), and finally, the amount of principal you still owe on the | mortgage. | Mortgage pad over 10 years = 8[iaons) To find the principal balance on the mortgage, you will use the Loan Formula: | | oF | a(i -(1+4) ) | Po= eH | #) | Down payment (See p.214 of your text in the Finance module for help. In this formula, d is the monthly payment and r is the annual interest rate expressed as a decimal from Part I, sor = ; N is the number of years remaining on the loan, and, of course, k = 12.) Principal balance on mortgage after 10 years = S{1sse005 To determine whether or not you've made or lost money, you must compare the "expenses" (down payment + mortgage paid + principal balance) to the "return* (future value of the home). Find the total "expenses". Expenses = $| 29767418 After 10 years, did you lose or gain money from selling the hause? Answer: | itso lomenionming comfaraass2lobviewassess.chpelduS9402Raid=96070S68uid=0 Page 6 of 12Lumen oF ya, 08 How much (did you lose or gain)? Answer:8 Score; 1/1 1/1 V/11/11/0.1/1 1/111 Time spent on this version: 11.7 minutes. { Show all tries } Question 3, | Version 11/1. Score: 8/8 | to the next, Itis a good idea to also keep a written account of the given values (e.g, original price of the house, annual interest rate, etc.) as you will be asked to refer back to these values as you go. Once you have "submitted” an answer to a question, you can click back and forth between the parts if you need to, though you may need to click on "Reattempt this question" at the top of the page. Don't worry, your correct answers will be saved! WarningtYou can submit answers to make sure they are correct make before proceeding / Round all of your answers to the nearest cent when appropriate to do so. Some questions are programmed to allow for slight variations in the answers due to rounding errors, BUT itis important that you don’t round values you are using in formulas. Only round your final answers Part Ill: 15 Year Mortgage In this part of the lab you will examine the values associated with a 15 year mortgage. You will use the same purchase price, down payment, and loan amount from Question 1. Start by confirming you have those correct values. Original purchase price (from Question 1) = | 21150 Loan Amount = § 190350 tps. lumentaaring.comfassess2iabviewassess.ohp2eld=S340zBald=3887056QUICA0 Page 6 of 12 211600 Down PaymentLuan ome 142, 3:04 Pat Typically, the annual interest rate on a 15 year loan is lower than on a 30 year loan Assume that you have found a 15 year loan with an annual interest rate of 3.69 % . Express the annual interest rate as a decimal. ‘The annual interest rate expressed as a decimal is{.cs6 I | As you did for the 30 year mortgage in Question 1, compute the monthly payment for the 15 year loan. Again, use the loan formula to find the monthly payment, d. The loan formula solved for d (5) (: -(1+4) fi) Hint: what value will you use for NV this time? Monthly Payment = $1972.61 Assuming you make the monthly payment each month for 15 years, what will be the total amount repaid? Total payments = $| 248149.57 Find the total amount of interest paid over the 15 years. To do so, subtract the amount originally borrowed from the total payments. Total interest pad = 8 d Compare the total interest paid with this 15 year mortgage to the total interest paid with the 30 year mortgage (from Question 1). How much would you save in interest if you use the 15 year mortgage? Difference in interest paid = $f rez1e6 ‘nos. menloarsing com/assess2/gbvlowessoss,phpicida63402Said=3B670568uic=0 Page 7 012Lumen OFM yas, 04 Pat Score: 1 WT TTA 1 I Time spent on this version: 4 minutes. i Question 4. Version 1*/1, Score: 5/5 WarningtYou can submit answers to make sure they are correct make before proceeding to the next. Itis a good idea to also keep a written account of the given values (e.g. original price of the house, annual interest rate, etc.) as you will be asked to refer back to these values as you go. Once you have "submitted" an answer to a question, you can click back and forth between the parts if you need to, though you may need to click on "Reattempt this question" at the top of the page. Don't worry, your correct answers will be saved! Round all of your answers to the nearest cent when appropriate to do so. Some questions are programmed to allow for slight variations in the answers due to rounding errors, 8UT itis important that you don’t round values you are using in formulas. Only round your | final answers. | Part IV: Paying Extra i While using a 15 year mortgage saves you money on interest compared to the 30 year mortgage, the monthly payment for the 15 year loan is higher than the 30 year. A good alternative is to use a 30 year loan, but to make extra payments toward the principal. This approach gives the homeowner some flexibility (you can always pay the minimum monthly payment if you can't pay the extra principal) but results in saving money on interest and paying the loan off quicker. To see the effect of making extra principal payments, you'll need some information from Question 1 Recall from Question 1, the original loan amount was $190350 and the 30 year interest | rate expressed as a decimal was r = 0.0495. Recall that 30 year monthly payment from Question 1. It should have been approximately: 30 year monthly payment = $1016.03 | Using this value, suppose that you pay an additional $100 a month toward principle. You will need to figure out how long it will take to pay off the loan with this additional payment. In order to do this, you would have to solve the following loan formula for N, psifohmlumenleaning.comjassess2/ghMlanessess php?eid=634028aiduS8670568ulde0 Page 8 of 12Lumen oN rz, 3:04 Pm which represents years: a ( -(4+5) (a) | (Note: Po is the original loan amount from Question 1 and here we have used k = 12. and | Po = d’ is your monthly payment plus the additional $100.) In order to solve the above equation for NV you would use logarithms. Using the notation og for the common logarithm, you would get the following formula: woe Talay ) (i210¢(1 =) Use the above formula to figure out NV, the number of years it will take to pay off the loan with the additional $100 payment. Alternatively, use an online amortization calculator such as: http://bretwhissel.net/amortization/amortize.html. You will need to enter the principal, the annual interest rate from this question, and the payment amount (your d’). Leave the “number of regular payments" blank and hit "Calculate". The number of regular payments divided by 12 should agree with NV from the formula above. Find V accurate to two decimal places- don't round any more than that! Give it a try! N =| 2458 To find the total interest paid you need the number of payments you made (which you either have or can get from NV by multiplying it by 12). You can round the number of payments to the nearest whole number. N Total number of regular payments Now you can find the total payments and the total interest paid, Don't forget to add the | additional $100 to your monthly payment before multiplying by the number of payments. | itps:fohm umerlearing.com/sssessQighviewassass.php2eid=S240?ReiedBR705CBud=0 Pago 0 of 12Lumen oF yaa, sa pat ez) Recall that the total interest paid from Question 1 was $175420.8. How much do you end up saving in interest if you pay the additional $100 per month? Score: 1/1 11/1 1/1 1/1 Time spent on this version: 21.7 minutes. | Show all tries _} Total payments | Question 5. | Version 1¥/1. Score: 1/1 lamenlearning.comfassass2abvlawassess.phplduS3402Salda3B87056HuidsO Page 10 2Lumen oH ers, 9:04 PM ios: fam umanlearing comjaseesa2|gbviewass This needs to be a separate page that is typed, proof-read for typos, spelling, and grammar. Your writing should be in an essay form (written in paragraphs). Use 12-point font and double space, Add a title (e.g. Reflective Writing for Mortgage Project). Your instructor will provide details for turning it in, Provide a brief introduction explaining the lab in your own words. Also in the introduction, tell the audience which mathematical techniques you used in the lab (e.g. percentages, Joan formulas, etc,). Then, please respond to each of the questions (in essay form, so restate the question you are answering). # Do you think this project shows how math can be applied to the real world? If "yes", please elaborate on why are the results important or beneficial. If "no", how could the lab change to make it more applicable to the “real world"? * Can you give an example of another application where this type of analysis would be beneficial? Be specific. © Ifyou were a mortgage broker, why would it be important to be able to explain the details of this project to clients? © Compare the differences between the 30 year, 15 year, and 30 year with extra payment plans. What are the "pros and cons" of each? * Did this assignment change your opinion of the usefulness of math? 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 applying math. Be specific. In Part |, you were asked to "do a search on the internet for the “average salary" of either your future profession or by your future college degree and compare it with" the minimum annual gross salary you'd need in order to afford the house. Comment on what you found out. Does it change your views on either purchasing a home or your choice of major? ePortfolio: Post a copy of this lab, including the Reflective Writing, to your ePortfolio (you can print a digital version as a pdf, or if you need to, scan a copy in the Copy Center), For more information about ePortfolios, please see the syllabus. | understand and will follow the directions, Score: 1/1 Time spent on this version: 0.8 minutes. 5 phpPeida504028aidn289706840I5H0 Page M1 of 12Parker Jewell Math 1030 Professor Hutchison Reflective Writing for Mortgage Project In this lab | examined different home mortgages and computed various values associated with different terms. | evaluated a 30-year mortgage with an agreed purchase price and a 10% down payment, | calculated the monthly payment for a 30- year loan with 4.95% annual interest rate using the loan formula to calculate the monthly payment. Then | subtracted the amount originally borrowed from the total payments to find the total amount of interest paid over the 30 years. | calculated values associated with selling the house after 10 years. | did the same thing with a 15-year loan and compared them to the 30-year loan values. Then used loan formulas and logarithms to examine the effects of making extra monthly payments on the 30-year oan. I think this project shows how math can be applied to the real world because | used formulas and logarithms to calculate real values that would be useful buying a house. In today’s market, it is very important to know how much home you can afford as well as knowing how much you need for a down payment. You can use these formulas to calculate different terms as well as different interest rates and compare options to best fit your needs.Another application where this type of analysis would be beneficial is buying a vehicle ‘or getting a personal loan. You can even use It for student loans and calculate how much you will have to pay each month and learn how much interest you will be paying cover the term. You can also exarnine if making extra monthly payments on the loan. If I were a mortgage broker, it would be important to be able to explain the details of this project to clients because ! would be better help serving their needs. | could educate them on interest rates as well as give them different options for different term mortgages. It would also help them to know how much house they can realistically afford. ‘The 15-year mortgage saves you money on interest compared to the 30-year mortgage. The monthly payment in higher for the 15-year loan compared to the 30- year loan. If you cannot pay the extra principle extra principal, you can use a 30-year mortgage but make extra payments toward the principal. This gives the homeowner more flexibility so you can always pay the minimum monthly payment but results in saving money on interest as well as paying the loan off quicker. The interest paid on a 30-year loan was $175,4208, the interest paid on a 15-year loan was $57,799.57, if you pay an additional $100 per month on a 30-year loan you pay $139,091.25 which saves you $36,329.55 in interest, This project gave further evidence supporting my existing opinion about applying math by showing that it plays a major role in the bottom jine of organizations. Math helpscompat lies perform better and more efficiently in today's data driven marketplace. You use math to solve real-life problems and it makes an impact on the world. | searched the average salary of a business major from the University of Utah. | found out that my degree roughly eas an average of forty thousand to sixty thousand starting. That is comparable to the minimum annual gross salary of $47,719.56 in order to afford the house in this project. It does not change my views on purchasing a home ‘or my choice of major because | know people without a degree can earn more than. that. College is important for many reasons, including long-term financial gain, job stability, career satisfaction and success outside of the workplace.