Math 1030

Name _Bridgette Thatcher

Buying/Refinancing a House

Instead of selecting a house on the market, I decided to look at what a refinance of my current mortgage
would look like.

The current mortgage payoff is $210,000.

If I were to make a down payment of 20%.

The down payment would be $42,000 and the amount of the mortgage would be $168,000.

However, because I have a VA loan, I wouldn’t need a down payment, so the amount I am going to use is
the full $210,000, just because I want to use this for a real-life decision.

Ask at least two lending institutions for the interest rate for both a 15-year and a 30-year fixed

rate mortgage with no “points” or other variations on the interest rate for the loan.

Name of first lending institution: __Freedom Mortgage Corporation(Current Lender)_____.

Rate for 15-year mortgage: __3.66%__________. Rate for 30-year mortgage _4.22%__.

Name of second lending institution: _USAA_

Rate for 15-year mortgage: __3.75%__________. Rate for 30-year mortgage _4.25%__.

Freedom Mortgage has the better rates right now, so I will use theirs.

15-year monthly payment: _210000=d(1-(1+.0366/12)^(-15*12) / (.0366/12)_ $1517.81__________.

30-year monthly payment _210000=d(1-(1+.0422/12)^(-30*12) / (.0422/12) $1029.39___________.

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 Date Payment Principal Paid Interest Paid Remaining

Number Amount Balance
1. 04/01/2018 $1517.81 877.31 640.50 209,122.69
2. 05/01/2018 $1517.81 879.98 637.82 208,242.71
50. 05/01/2022 $1517.81 1,018.49 499.31 162,690.92
90. 09/01/2025 $1517.81 1,150.43 367.37 119,299.91
150. 09/01/2030 $1517.81 1,381.07 136.73 43,449.91
180. 03/01/2033 $1513.19 1,508.58 4.62 0.00
Total - $273,205.39 $210,000 $63,205.39 -

Use the proper word or phrase to fill in the blanks.

The total principal paid is the same as the _Original Mortgage Amount_______.
The total amount paid is equal to the number of payments multiplied by

__Payment Amount, although sometimes the final payment is not the same amount___.

The total interest paid is equal to the total amount paid minus the

_Principal Paid________________________________.

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 $__146,794.61 ( less) than the mortgage.

The total amount of interest is __30 % of the mortgage.

30 Year Mortgage

Payment Payment Date Payment Principal Paid Interest Paid Remaining

Number Amount Balance

1. 04/01/2018 $1029.39 290.89 738.50 209,709.11

2. 05/01/2018 $1029.39 291.91 737.48 209,417.20
60. 03/01/2023 $1029.39 357.83 671.56 190,606.50
120. 03/01/2028 $1029.39 441.73 587.66 166,666.10
240. 03/01/2038 $1029.39 673.14 356.25 100,630.43
300. 03/01/2043 $1029.39 830.96 198.43 55,594.66
360. 03/01/2048 $1025.78 1,022.17 3.61 0.00
Total - $370,580.01 $210,000.00 $160,580.01 -

Payment number 164 is the first one in which the principal paid is greater than the interest paid.

The total amount of interest is $_49,419.99__ (less) than the mortgage.

The total amount of interest is __76__% of the mortgage.

Suppose you paid an additional $100 a month towards the principal [If you are making extra

payments towards the principal, include it in the monthly payment and leave the number of

payments box blank.]

The total amount of interest paid with the $100 monthly extra payment would be

$__131,345.50__.

The total amount of interest paid with the $100 monthly extra payment would be

$_29,234.51__(less) than the interest paid for the scheduled payments only.
The total amount of interest paid with the $100 monthly extra payment would be

76-63=_13_% (less) than the interest paid for the scheduled payments only.

The $100 monthly extra payment would pay off the mortgage in _25_ years and __3_

months; that’s __57_ months (4.75 years) sooner than paying only the scheduled payments.

The first question for me is at this point in my life, can I afford the 15 year mortgage vs the 30 year
mortgage? 1517.81-1029.39= $488.42 more per month for the 15 year.

My escrow payment each month is $126.87, so that would get added to each of the amount.
$1517.81+126.87= $1644.68 vs $1029.39+ 126.87= $1156.26

My interest rate right now is only 3.25%, so I feel like it isn’t a great decision to lose that just to
refinance. However, I really like the idea of keeping my current mortgage and paying an extra $100
toward principal per month. Even though my end goal isn’t to pay of this house sooner, I recognize the
benefits of more equity when it comes time to sell, or in the event I need an equity loan if there is an
unforeseen emergency. This was the biggest take-away for me.

The extra payment of $100 may only pay it off 4.75 years sooner, but it saves about $30, 000 in interest
over the course of the loan. You could more than double those saving by doing the 15-year loan though.
$131,345.50-$63,205.39= $68140.11

The amount of interest that is paid on the 30 year loan, is almost twice as much as the first house that I
ever bought. (Delta is a very small town, houses don’t go for too much.)

The difference in the interest paid with the 30 year loan vs the 15 year loan is $160,580.01- $63,205.39=
97,374.62 While this amount seems insane to me, it also makes sense. Not only in the interest rate .56%
higher, it is also financed over an additional 15 years.

An extra principal payment of $550 would need to be added to the 30 year loan to pay it off in 15 years.
This would be more than the payment for the actual 15 year loan, because the interest rate is higher.
$1029.39+550= $1,579.39 payment and the total interest would still be $73,590.70 , which is
$10,385.31 more that the 15 year loan, even though it is paid off in the same amount of time. This
would be a poor strategy, except for the fact that if one month you couldn’t make the additional
payment, it wouldn’t be messing up your actual mortgage payment. In that case, it would give you a
little more financial breathing room, but if you had to skip a month, it would not pay it off in the 15
years.

My bottom line is that I know this isn’t the last house that I am going to buy. It’s the third house I’ve
bought, upgrading with each along the way. I guess that makes me feel less inclined to worry about
completely paying it off at this point, and more concerned with how much I will get out of it to put
toward my next house that I buy. That is the one that I really do believe will be my “forever house”, with
a 15 year loan, because that is what makes the most sense long term.