MyaNguyen

Mr.Shelley
Math1050
24November2015

Math1050MortgageProject

Inthisprojectwewillexamineahomeloanormortgage.Assumethatyouhave
foundahomeforsaleandhaveagreedtoapurchasepriceof
$201,00.

DownPayment:

Youaregoingtomakea10%downpaymentonthehouse.Determine
theamountofyourdownpaymentandthebalancetofinance.

DownPayment
$20,100

MortgageAmount
$180,900

PartI:30yearMortgage
MonthlyPayment:Calculatethemonthlypaymentfora30yearloan(roundingup
tothenearestcent)byusingthefollowingformula.Showyourwork.[PMTisthe
monthlyloanpayment,
P
isthemortgageamount,
r
istheannualpercentratefor
theloanin
decimal,
and
Y
isthenumberofyearstopayofftheloan.]Forthe30
yearloanuseanannualinterestrateof4.975%

r
P( 12
)

P MT =

r 12Y
1(1+ 12
)

Showyourworkhere:

P MT =

180,900( 0.04975
12 )
12Y
1(1+ 0.04975
12 )

P MT =

749.98125
P=180,900
1(1.004145833)360
749.98125
0.774495367 r=0.04975

P MT =
P MT = 968.3482716 Y=30

P MT 968.35

MonthlyPaymentfora30yearmortgage
$968.35

Notethatthismonthlypaymentcoversonlytheinterestandtheprincipalonthe
loan.Itdoesnotcoveranyinsuranceortaxesontheproperty.
AmortizationSchedule:Inordertosummarizealltheinformationregardingthe
amortizationofaloan,constructaschedulethatkeepstrackofthepaymentofthe
paymentnumber,theprincipalpaid,theinterest,andtheunpaidbalance.Wecan
easilycreateandtracktheamortizationschedulebyusingaamortization
spreadsheetontheweb.

AmortizationSchedulemonthlypaymentfora30yearmortgage
$968.35

Totalamountpaid
$348,604.53

Noticethattheamountofthepaymentthatgoestowardstheprincipalandthe
amountthatgoestowardstheinterestarenotconstant.Whatdoyouobserveabout
eachofthesevalues?
Whenyoufirstbegintopayofftheloan,themajorityoftheyourmoneyispayingforthe
interestonthebankloan.Abouthalfwaythroughthelengthofyourloan,moreofyour
moneystartstopayfortheprincipalamountoftheloanratherthantheinterest.

Numberoffirstpaymentwhenmoreofpaymentgoestowardprincipalthaninterest:

194

Asalreadymentioned,thesepaymentsareforprincipalandinterestonly.Youwill
alsohavemonthlypaymentsforhomeinsuranceandpropertytaxes.Inaddition,it
ishelpfultohavemoneyleftoverforthoselittleluxurieslikeelectricity,running
water,andfood.Asawisehomeowner,youdecidethatyourmonthlyprincipaland
interestpaymentshouldnot35%ofyourmonthlytakehomepay.Whatminimum
monthlytakehomepayshouldyouhaveinordertomeetthisgoal?Showyourwork
formakingthiscalculation.

Showyourworkhere:

Monthlypayment:968.35
968.35 = 0.35x
968.35
0.35

= 0.35x
0.35
x=2766.714286
x 2766.71

Minimummonthlytakehomepay
$2766.71

Itisalsoimportanttonotethatyournetortakehomepay(aftertaxes)islessthan
yourgrosspay(beforetaxes).Assumingthatyournetpayis73%ofyourgrosspay,
whatminimumgrossannualsalarywillyouneedtomaketohavethemonthlynet
salarystatedabove?Showyourworkformakingthiscalculation.

Showworkhere:

Monthlytakehome(netpay):2766.71
0.73x=2766.71
0.73x
0.73

2766.71
0.73

x = 3790.013699
thisamountismonthly, somultiplybytwelvetogettheyearlygrosspay

3790.013699 12 = 45480.16438

Minimumgrossannualsalary

$45,480.16

PartII:SellingtheHouse:
Letssupposethatafterlivinginthehousefor10years,youwanttosell.The
economyexperiencesupsanddowns,butingeneralthevalueofrealestateincreases
overtime.Tocalculatethevalueofaninvestmentsuchasrealestate,weuse
continuouslycompoundedinterest.

Findthevalueofthehome10yearsafterpurchaseassumingacontinuousrateof4%.Use
thefullpurchasepriceastheprincipal.Showyourwork.

Showyourworkhere:
A(x) = P ert P=201,000
A(x)=201,000 e(0.0410) = 299856.7642 t=10
A(x) 299856.76 r=0.04

Valueofhome10yearsafterpurchase
$299,856.76

Assumingthatyoucansellyourhouseforthisamount,usethefollowing
informationtocalculateyourgainsorlosses:

Sellingpriceofyourhouse
$299,856.76

Originaldownpayment
$20,100

Mortgagepaidovertenyears
$116,202

Theprincipalbalanceonyourloanaftertenyears
$147,036.48

Doyougainorlosemoneyoverthe10years?Howmuch?Showyouramountsand
summarizeyourresults:

T otalmoney = sellingprice (originaldown + mortgagepaid + principalbalance)

T = 299, 856.76 (20, 100 + 116, 202 + 147, 036.48)

T = 16, 518.28
Bysubtractingallthepreviouspaymentsonthehousefromthesellingpriceof
thehouse,youfindthat
youhavegained$16,518.28
overthetenyearsof
mortgagingthehouse.

PartIII:15YearMortgage
Usingthesamepurchasepriceanddownpayment,wewillinvestigatea15yearmortgage.

MonthlyPayment
:Calculatethemonthlypaymentfora15yearloan(roundingup
tothenearestcent)byusingthefollowingformula.[PMTisthemonthlyloan
payment,
P
isthemortgageamount,
r
istheannualpercentratefortheloanin
decimal,and
Y
isthenumberofyearstopayofftheloan.]Forthe15yearloanuse
anannualinterestrateof4.735%.

P MT =

P ( 12r )
1(1+ 12r )12Y

Showyourworkhere:

P MT =

180,900(0.04735
12 )
r 12Y
1(1+12 )

P=180,900

713.80125
P MT = 0.507791273
r=0.04735
P MT 1405.698144

Y=15

MonthlyPaymentfora15yearmortgage
$1405.70

Usetheamortizationspreadsheetagain,thistimeenteringtheinterestrateand
numberofpaymentsfora15yearloan.

AmortizationSchedulemonthlypaymentfora15yearmortgage
$1405.70

Totalinterestpaidover15years
$72,126.00

Totalamountpaid
$253,026.00

Numberoffirstpaymentwhenmoreofpaymentgoestowardprincipalthan
interest
5

Supposeyoupaidanadditional$100towardstheprincipaleachmonth.Howlong
wouldittaketopayofftheloanwiththisadditionalpaymentandhowwillthis
affectthetotalamountofinterestpaidontheloan?[Ifyouaremakingextra
paymentstowardstheprincipal,includeitinthemonthlypaymentandleavethe
numberofpaymentsboxblank.]

Lengthoftimetopayoffloanwithadditionalpaymentsof$100permonth
13
yearsand1week

Totalinterestpaidoverthelifeoftheloanwithadditional$100monthly
payments
$64,713.29

Totalamountpaidwithadditional$100monthlypayments
$245,613.29

Comparethistotalamountpaidtothetotalamountpaidwithoutextramonthly
payments.Howmuchmoreorlesswouldyouspendifyoumadetheextraprincipal
payments?

Moneysaved/spent = principalwithoutmonthlypayments principalwithextrapayments

253,026245,613.29=7412.71
Youwould
saveabout$7,412.71
ifyoupaidtheextrahundreddollarspermonth.

PartIII:Reflection

Didthisprojectchangethewayyouthinkaboutbuyingahome?Writeoneparagraph
statingwhatideaschangedandwhy.Ifthisprojectdidnotchangethewayyouthink,write
howthisprojectgavefurtherevidencetosupportyourexistingopinionaboutbuyinga
home.Bespecific.

ThisprojectabsolutelychangedthewayIthinkaboutbuyingahome.IdontthinkI
reallyknewhowaboutthemassamountofmoneythatjustgoestowardsinterest.The
interestratesinthisprojectseemedrelativelylow,butwhentheywereappliedtoabig
amountofmoneytheyweremagnified.Ononeendthisprojectmademestressabouthow
muchmoneyahousereallycosts,butontheother,itmademerealizethattherearevery
helpful,practicalwaysofmanagingyourmoneyandcreatingapersonalizedbudget.I
likedhowthisprojectcomparedtosimilarscenariosbutchangedtheamountofmoney
youpayeachmonth,becauseithelpedmeseethatjustbecauseyouarepayinglessper
monththananotherloan,youmightbepayingmoreinthelongrun.Ilikedhowthis
projecttiedinlessonsthatIvelearnedfromfinancialliteracy,becauseitgavemea
realistic,tangiblerepresentationofthoselessons.Ienjoyedthisprojectbecauseitgave
meresourcesthatIwillneedtouseinmylifeinthefutureandofferedarealworld
experienceusingmath.Itsalwaysinterestingtofindthatthingsyouarelearningin
schoolareapplicabletotherealworld.