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Folio Task ‘Affording Your Own Home’

Your Name

Home Class

Subject Financial Mathematics

Topics: Geometric progression, mortgages, savings and taxes

Year level Year 9

Formal Folio Investigation

Due date Tuesday Week 3 Term 2

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INTRODUCTION
This task examines financial mathematics and how housing affordability is becoming increasingly
unattainable for Australians, particularly young people. In an imaginary scenario, students receive
$10,000 at 16 and find creative ways to use it. Individuals subsequently plan their career and
homeownership goals. After finding a suitable property, they use the home loan repayment formula
to model it. Answering the question, "How Affordable Is a Mortgage?"

To complete this task knowledge on commercial arithmetic and geometric progression as they pertain
to percentages, budgeting, income calculation, and bill comprehension are delved into. With regards
to interests, on simple interest scheme, interest on the initial loan amount is paid, not the total
amount borrowed. However, compound interest is interest earned not only on the initial principal but
also on all interest that has accrued to that point. That is, the money is reinvested after each year and
the interest is added to the principal.

The road of life is paved with unforeseen twists and turns. Consequently, it is crucial to put money
aside for a variety of reasons, including paying off debt, taking a trip, covering medical expenses or
lost wages, and buying expensive items. It is better to be safe than sorry.

Definitions

Gross pay: The total amount an employee earns before tax and other deductions are taken out

Net pay: take-home pay or the amount employees earn after all payroll deductions are subtracted
from their gross pay.
Stamp Duty: A stamp duty is a tax that governments place on legal documents, usually involving
the transfer of real estate or other assets.

Expense: the cost incurred in or required for something.

Income: money received, especially on a regular basis, for work or through investments.

By establishing an ice vending business with $10,000 at the age of 16 and enrolling in university to
pursue a Bachelor of Accounting degree at a Melbourne-based institution with the aid of student loan
financing, a part-time job, ice vending business profit, and parental support. With an expected annual
gross salary of $80,000 per month after entering the job market, it is examined whether it will be
capable to afford a 2-bedroom, 2-bathroom, and 1-car space home mortgage of value starting at
$650,000 which is 7 times the gross pay with a 20% down payment using savings and a $15,000
first-time homeowner grant. By setting aside money from the expected salary, part-time job, parental
assistance, and vending machine investment, and by deductions made on paying off bills and living
expenses. Is it possible to service university student loans and purchase dream home in Australia?
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Mathematical Analysis and Investigations.

First $10,000 investment in ice and water vending as a 16 year old.

Ice vending is a low-risk, low-maintenance business idea. It's a unique business model that lets you
own a business without the hassle. No payroll or employees. An ABN, a reliable vending machine,
transport, stock, coin, note, and credit card readers are needed to start a vending machine business.

The initial cost will be calculated as :

Australian Business License fee +New Reliable Vending Machine+ Advertising

$500+$4000+$500=$5000

Expenses in running the ice vending business

Transport Cost (Daily Trip For stock refill at the site of vending business)+Weekly Maintenance+
Stock Refill expense per ice bag.

$20($10 bus ticket×2)×25 days a month ×12 months+$100×4 weeks×12 months×$0.25×900 ice
bags× 12 months =$13,500

Total yearly average expected sales

With 500 people as consumers in a town having the ice vending machine at the park, 10 miles from
home. Hypothetical it is expected that the vending machine sells about 900 ice bags a month. At
$2.50 per bag, that generates $2,250 per month.

$2,250×12=27,000

Yearly profit

First year Profit=$27000-($13500 variable Cost-$5000 Fixed cost)=$ 8500

In the next 9 years of running the ice vending business assuming a 10 year midterm plan

Profit=9×13,500=$121,500.

20%of the monthly profit will be invested into the future career choice and the 80% (about $100,000)
into principal down payment.

A university is an excellent place to pursue a career and education in accounting due to its high
demand in the finance industry. Universities and institutions emphasize practical knowledge and
provide basic education. Scholarships and part-time employment are available to alleviate financial
burdens.

The amount of money you can save each month as a student in Australia depends on a variety of
factors, including your living expenses, income, and lifestyle. Depending on the city and lifestyle
chosen, living expenses in Australia may include rent, utilities, groceries, transportation, and
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entertainment. The current hourly wage in Australia is about $20 AUD, and you may be able to find
work in hospitality or retail. Budgeting can be an effective method for managing expenses and saving
money, and scholarships and financial aid can help offset some of your costs. It is essential to create
a budget and monitor your expenses to ensure that you are on track to meet your savings objectives.

Joining a Melbourne based university to pursue accounting and doing a part time job that will enable
earning of around $750 per week. How much can be saved at the end of the 4-year university
program.

This has been calculated and can be referred to as seen in Appendix A (Table 4, Table 5,Table 6 and
Figure 1.)

Total savings made on an academic year.

After calculating the net monthly income and monthly expenses a minimum of $1,263 can be saved
monthly. This will amount to roughly $40,000 savings after completion of the accounting course.

The saving will be used as down payment in the purchase of the mortgage plan.

After completion of university, it is important to have a good understanding of one's credit score and
financial situation. It is also important to have a solid budget in place and pay off any outstanding
debts. Purchasing a house is the biggest buy, so it is important to understand what you can stand to
get. A home loan is an advance taken out to purchase property or land, and its rates can fluctuate
depending on an assortment of elements. It is a serious commitment, so it is important to be prepared
and fully understand all the terms and conditions of the loan.

Assuming a $80,000 annual gross payment as an accountant, Ice vending business profit,
university savings, a $15,000 first-time homeowner grant

and renting to afford a 2-bedroom, 2-bathroom, and 1-car space home mortgage valued at $650,000
on 15 year repayment period,$700,000 on 20 year repayment period, ,$760,000 on 20 year repayment
period and with an initial 20% principal deposit and a $15,000 first-time homeowner grant .Different
options to finance the mortgage shall be delved into to check on the most viable option of
owning a house.

Taxable income
From To Tax on this income
0 18200 Nil
18201 45000 19c for each $1 over $18,200
45001 120000 $5,092 plus 32.5c for each $1 over $45,000
120001 180000 $29,467 plus 37c for each $1 over $120,000
180001 above $51,667 plus 45c for each $1 over $180,000
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Income 80000
Tax thereon 16467
Medicare 1600
Sub-Total 18067
Less: LITO
offset 0
Tax Payable 18067
Net pay 61,933
Ave Tax Rate 23%
Table 1:Calculating Net pay

Mortgage payment calculations

Compound period 12 months

Mortgage information
Option 1 Option 2 Option 3
Property Value $650,000.00 $700,000.00 $800,000.00
First homeowner grant $15,000.00 $15,000.00 $15,000.00
Stump duty and fee
charges $25,424.00 $27,799.00 $32,869.00
Down Payment $130,000 $140,000 $160,000
Principal loan amount $530,424.00 $572,799.00 $657,869.00
Annual interest rate 6.8% 6.0% 5.5%
Term of loan (in years) 15 20 25
Payment      
Monthly interest rate 0.57% 0.50% 0.46%
Monthly payment (PI) $4,708.49 $4,103.71 $4,039.89
Extra monthly payment      
Total monthly payment $4,708.49 $4,103.71 $4,039.89
       
Totals      
Number of payments 180 240 300
Number of years to
payoff 15 20 25
Total payments 847,527.94 984,890.39 1,211,967.37
Total interest paid 317,103.94 412,091.39 554,098.37
Table 2:Mortgage Calculation on different options
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CONCLUSION
Most importantly, a house is not an investment but a place to call home. It must be shown that doing
so is a financially prudent choice after considering all available options. Buying a primary residence
may be more expensive than investing in a renting.
After placing a mortgage plan with a yearly payment amounting to $50,000 as a salaried
accountant with a net pay of $61,933 after tax and a $13,500 external income from the started
vending business, it is seen from data in Appendix B that is inclusive of expenses.Net salary
alone cannot pay the mortgage at a comfortable margin as it is seen that almost 86% of the total
income from both an outside business and the salary is used in expenses.

Principal determines the amount of interest charged on a loan. When you make monthly
payments on a loan, most of the payment is applied to interest charges before the remainder is
applied to the loan's principal. The only way to reduce the amount of interest accruing each
month on a loan is to reduce the principal balance. This is done by taking a down payment at the
initial level and utilizing the first home owner grant.

Also long term repayment period is more expensive as more interest is accrued. Shorter
repayment period is cheaper but will pinch a little more on the monthly repayment expense.
This research on hypothetical scenario has shown that indeed owning a house through mortgage
is indeed difficult and almost unmanageable with little saving or without other sources of
income. Renting and other options include sharing the cost with a life partner to ease on the
pressure.
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APPENDIX
Appendix A

University budget
MONTHLY INCOME
ITEM AMOUNT
part time job income $3,000
financial aid $1,000
Student loans $900
20% ice vending business profit $225
TOTAL $5,125
Table 3:Expected monthly income while on a semester

University budget

MONTHLY EXPENSES

ITEM AMOUNT

Rent $1,000
Bills(Electricity and Water) $250
Mobile phone data $75
Groceries and food $250
Transport cost $500
Student loans $500
credit cards $275
Insurance $125
Hair cuts $50
Entertainment $100
Miscellaneous $150

TOTAL $3,275
Table 4:Expected monthly expenses while on a semester

University budget
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SEMESTER EXPENSES *
ITEM AMOUNT PER MONTH
Tuition $5,750 $1,438
Library fees $100 $25
Books $500 $125
Deposits $0 $0
Transport cost $0 $0
other fees $0 $0
TOTAL $6,350 $1,588
* based on a 4 month semester
Table 5: 4 Month University Semester Expenses

University budget
PERCENTAGE OF INCOME SPENT

79%

$6,500 $6,125
net monthly income $6,000
$5,500 $4,863
$6,125 $5,000
net monthly expenses $4,500
$4,000
$4,863 $3,500
$3,000
$2,500
balance
$2,000
$1,263 $1,500
$1,000
$500
$0
income expenses

Figure 1:Monthly Savings in University(8 month period yearly)

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Appendix B

Figure 2:Average cost for an average dwelling

TOTAL YEARLY INCOME $78,000

$75,433 $76,000
$74,000
TOTAL YEARLY EXPENSES $72,000

$64,730 $70,000
$68,000

86% TOTAL YEARLY SAVINGS

$850
$66,000
$64,000
$62,000

CASH BALANCE $60,000

$9,853 $58,000
In c o m e Exp e n se s

Figure 3:YEARLY INCOME AND EXPENSES

Yearly income after tax

ITEM AMOUNT
Income source 1 $61,933.00

Income source 2 $0.00

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Other $15,000.00

Yearly expenses  
ITEM AMOUNT
Mortgage payment $50000.00

Electricity Bill $2,694.00

Gas $700.00

Mobile Phone Data $130.00

Groceries $800.00
Car
payment(Registration ,I $273.00
nsurance)
Auto expenses $120.00

Student loans $500.00

Credit cards $100.00

Bupa Heath insurance $2,710.00

Water supply and
$1,000.00
sewerage
Entertainment $100.00

Security $400.00

Council rates $2,800.00

Ambulance Cover $109.00

Home and Contents
$2,294.00
cover
Table 6:Yearly income from salary and vending business and expenses including mortgage