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Part I

Assume that you have found a home for sale and have agreed to a purchase price of
$296900.

Assume that you will make a 10 % down payment on the house.

Determine the amount of your down payment and the balance to �nance.

Down Payment = $ 29690.00

Loan Amount = $ 267210

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 7.25 % .

First, express the annual interest rate as a decimal.

The annual interest rate expressed as a decimal is .0725 .

Now use the loan formula to �nd the monthly payment, d.

− Nk
d(1 − (1 + r
k
) )
P0 =
( kr )

P0 is the original loan amount.

r is the annual interest rate in decimal form.
k is the number of compounding periods in one year (so k = 12).
N is the length of the loan in years.
For each of the following answers, be sure to answer to the nearest cent. Include
zeros where needed.

Monthly Payment : d = $ 1822.84

Assuming you make the monthly payment indicated above each month for 30 years
as , what will be the total amount repaid? Be sure to add cents to your answer.

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Total payments = $ 656222.40

Find the total amount of interest paid over the 30 years. To do so, subtract the
amount originally borrowed from the total payments. Be sure to add cents to your
answer.

Total interest paid = $ 389012.40

3/3 pts 99

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Part II

As already mentioned, the mortgage payment you

calculated in Part I is 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. Even so, it is necessary to have income left over for other expenses like
electricity, water, food, and other bills. It is generally suggested 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.

Using the mortgage payment you calculated in Part I, what minimum monthly take-
home pay (i.e. your monthly paychecks after taxes) should you earn in order to meet
this goal? In other words, your mortgage payment should be equal to 35% of your
monthly take-home pay.

Minimum monthly take-home pay = $ 5208.11

It is 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 �nd the minimum gross monthly salary will you
need to a�ord this house.

Minimum monthly gross pay = $ 7134.40

Now, calculate the minimum annual gross pay you will need to a�ord this house.

Minimum annual gross pay = $ 85612.80

Do a search on the internet for the "average salary" of either your future
profession or 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 Re�ective Writing for this lab.

8/8 pts 97-99

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Part III: 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 P art 1 if you need to).

Original purchase price (from Part 1) = $ 296900

To approximate the future value of an investment such as real estate, you will use
the compounded interest formula:

r Nk
PN = P0 (1 + )
k

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 6 %
interest rate. Use the full purchase price of the home from the previous problem
(Question 1) as the principal (or initial value, P0 ) in the compound interest formula.

Future value of home = $ 531702.68

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 P art
1), the amount you paid toward the mortgage over ten years (your monthly payment
from Question 1 times the number of payments), and �nally, the amount of principal
you still owe on the mortgage.

Down payment = $ 29690.00

Mortgage paid over 10 years = $ 218740.80

To �nd the principal balance on the mortgage, you will use the Loan Formula:

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− Nk
d(1 − (1 + r
k
) )
P0 =
( kr )
(In this formula, d is the monthly payment and r is the annual interest rate
expressed as a decimal from Part I, so r = ; k = 12, and N is the number of years
on the loan.)

Principal balance on mortgage after 10 years = $ 230629.48

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 = $ 479060.28

After 10 years, did you lose or gain money from selling the house? Answer:
gained

How much (did you lose or gain)? Answer:$ 52642.40

8/8 pts 99

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Part IV: 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 con�rming you have those correct values.

Original purchase price (from Question 1) = $ 296900

Down Payment = $ 29690

Loan Amount = $ 267210

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 4.875 % .
Express the annual interest rate as a decimal.

The annual interest rate expressed as a decimal is .04875 .

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 �nd the monthly payment, d. The loan formula is:

− Nk
d(1 − (1 + r
k
) )
P0 =
( kr )

Hint: what value will you use for N this time?

Monthly Payment = $ 2095.72

Assuming you make the monthly payment each month for 15 years, what will be the
total amount repaid?

Total payments = $ 377229.60

Find the total amount of interest paid over the 15 years. To do so, subtract the
amount originally borrowed from the total payments.

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Total interest paid = $ 110019.60

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 = $ 278992.80

5/5 pts 99

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Part V: Paying Extra

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 �exibility (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 o� quicker.

To see the e�ect of making extra principal payments, you'll need some information
from Part I.

Using the original loan amount, 30 year interest rate and monthly payment from Part
I, suppose that you pay an additional $100 a month toward principal. You will need
to �gure out how long it will take to pay o� the loan with this additional payment. In
order to do this, you will solve the following loan formula for N , which represents
:

d * (1 − (1 + r − 12N
12
) )
P0 = r
( 12 )

Where P0 is the original loan amount from Part I and d * is your 30-year monthly
payment plus the additional $100. (Note: This formula shown above assumes
k = 12 .
In order to solve the above equation for N you would use logarithms. Using the
notation log for the common logarithm, you would get the following formula:

log( 12d *
)
( 12d * − P0 r )
N = r
(12 log(1 + 12
))

Use the above formula, or the original formula to solve for N , the number of years it
will take to pay o� the loan with the additional $100 payment. Find N accurate to
two decimal places.

N = 25.3 years

To �nd the total interest paid you need to calculate the number of payments you
made. Use N , rounded o� to two decimal places and multiply by payments per

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year, 12). Then round the number of payments to the nearest since
you generally make complete payments.

Total number of regular payments= 304

Now you can �nd 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.

Total payments = $ 584543.36

Total interest paid = $ 317333.36

Using the total interest paid from Part I, determine how much do you end up saving
in interest if you pay the additional $100 per month?

Save in interest = $ 71679.04

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Tia Howells
Reflective Writing for Mortgage Project

This lab was an experiment in doing the math to figure out, to a granular degree,

what will be paid to the loan servicer (and overall) for a home. We also covered the

standalone loan amount, the interest amounts for both 15 and 30-year mortgages, and

how much the monthly payments would be. I used percentage-to-decimal conversions,

logarithms, and the loan formula primarily to get through this assignment.

I do think this project shows how math can be applied in the real world, but I also

think to a certain degree that it highlights how needlessly difficult and inaccessible

things like homeownership have become to the general public–both from a cost

standpoint, and a logistics standpoint. This entire module felt like pulling teeth. That may

come from my general inability to understand complicated mathematical scenarios, but I

know for a fact that I’m not alone, and that the vast majority of people who aren’t a

mortgage broker by trade will likely not be able to benefit from the formulas we covered.

Even my husband, who works in IT is naturally very gifted at maths and science,

struggled to help me with the concepts we covered.

Another application for what was covered in this assignment is buying a car, but

more for the people selling the car than the person buying it. If the person buying the

car were capable enough at calculations to figure out to the smallest detail what they

would owe on the car they’re buying, it would benefit them and help them check the

salesmen. However, the math being as complicated as it is makes it easy for a

dealership to obfuscate the true costs associated with owning that car. The same could

absolutely be said for mortgage companies.

If you were an honest mortgage broker, these calculations would be important

because your client would need to evaluate the costs associated with buying their
 prospective home to ensure they could afford it. Knowing those details would be the

difference between foreclosure and relatively comfortable ownership, although that

concept is a distant fantasy for most people under 40 trying to buy a house today.

The difference between the 30-year and 15-year loan essentially comes down to

the amount of the monthly payment, as that is the first and foremost thing a person

would need to evaluate when considering their expenses. For a person who is a little

more comfortable in their finances, it would be a good idea to pay more, because it

would save them interest on the total amount in the long run. For a person who is a little

less comfortable but still wants to own a home, their only choice would likely be a

30-year mortgage on which they’d pay significantly more in interest–and that would be

the majority of homeowners.

This assignment did not change my opinion of the usefulness of math. I knew

that there were real-life applications for it, as frustrating as that is for someone who has

a very hard time with numbers. It did, however, make me aware of how inaccessible

these details are to the vast majority of people.

I’ve long since accepted that the degree I’m pursuing will not make me wealthy

or even financially comfortable. Most careers nowadays won’t do that for anyone, as

individuals in certain places would need to make upwards of $120,000 per year to get

by in the way that Americans were intended to. However, I’m not in this alone, and will

share a piece of land and a little house with my husband eventually. We will not be

deterred by the impossible state of things.