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Math 1030 Mortgage Project

Name(s)
Due date:
In this project we will examine a home loan or mortgage. Assume
that you have found a home
for sale and have agreed to a purchase price of $320,500.

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.

Down Payment Mortgage Amount

Part l: 30 year Mortgage


Monthly Payment: Calculate the monthly payment for a 30 year loan (rounding up to the
nearest cent) by using the following formula. Show your work. [PMT is the monthly loan
Y
payment, P is the mortgage amount, r is the annual percent rate for the loan in decimal, and
of
is the number of years to pay off the loan. For the 30 year loan use an annual interest rate
4.975%.

PMT
=
Monthly Payment for a 30 year mortgage

on the loan. It does


Note that this monthly paymentcovers only the interest and the principal
not cover any insurance or taxes on the property.
amortization Of
Amortization Schedule: In order to summarizeall the information regarding the
principal paid, the
a loan, we construct a schedule that keeps track of the payment number, the
interest, and the unpaid balance. A spreadsheet program is an excellent tool to develop an
amortization schedule. We will use a free amortization spreadsheet at
Enterthe principal (amount of the
http://www.bretwhissel.net/amortization/amortize.html.
loan), i.e. the selling price minus the down payment, the annual interest rate, and the
appropriatenumber payments per year and number of regular payments. Check the box to
show the amortization schedule.

Amortization Schedule monthly payment for a 30 year mortgage =


(Note: if this is more than 2 or 3 cents different from your calculation, check
your numbers!)
Scroll down to find the total interest paid over 30 years =

and the total amount repaid = I-I(C


payment
r-noUntof the
are not
that goes towards the principal and the amount that goes towards the interest
constant. What do you observe about each of these values over time?

principal than
Find the number of the first payment when more of the payment goes toward
interest.

also have
only. You will
As already mentioned, these payments are for principal and interest it is helpful to havehome
monthly payments for home insurance and property taxes. In addition,and food. As a wise35% of
money left over for those little luxuries like electricity, running water,should not exceed order
t in
owner, ou decide that your monthl rinci al and interest paymen should you have
pay
your monthly take-home ay. hat minimum monthlytake-home
to meet this goal? Show your work for making this calculation.

Minimum monthly take home pay =


your gross
your net or take-home pay (after taxes) is less than
It is also important to note that gross pay, what minimum
gross
Assuming that your net pay is 73% of your
pay (before taxes). your
you need to make to have the monthly net salary stated above? Show
annual salary will
work for making this calculation.

(00tQI X
=
Minimum gross monthly salary
=
Minimum gross annual salary

2
Part Il: Selling the House
Let's suppose that after living in the house for 10 years, you want to sell. The economy
experiences ups and downs, but in general the value of real estate increases over time. To
calculate the value of an investment such as real estate, we use compounded interest. To get
an accurate approximation, we'll use a daily compounding period (so, k=365).

Find the value of the home 10 years after purchase assuming an interest rate of 4%. Use the full
purchase price as the principal. Show your work.

following
We will assume that you can sell the house for this amount. Determine the
information in order to calculate your gains or losses:

Selling price of your house


g 2(OCO
Original down payment
= paid + principal paid
Mortgage paid over the ten years interest +4) 97(O - $11qqq.o%
(see amortization schedule)
loan after ten years
The principal balance on your

the 10 years. Show


to determine if you have gained or lost money over
Use this information your gain or loss.
your work here for determining the amount of pawlf
void
-(vcwn

3
Part Ill: 15 year Mortgage
Using the same purchase
price and down payment, we
will investigate a 15 year mortgage.
Monthly Payment: Calculate
the monthly payment for a 15 year loan
nearest cent) by using (rounding up to the
the following formula. Show your work.
payment, P is the mortgage (PMT is the monthly loan
amount, r is the annual percent rate for the loan in decimal,
is the number of years and Y
to pay off the loan. For the 15 year loan use
4 735%. an annual interest rate of

PMT
Monthly Payment for a 15 year mortgage =

Use the amortization spreadsheet on


the web again, this time entering the interest rate and
number of payments for a 15 year loan.

Amortization Schedule monthly payment for a 15 year mortgage =


(Note: if this is more than 2 or 3 cents different from your calculation, check your numbers!)

Total interest paid over 15 years =

Total amount repaid =

Find the number of the first payment when more of the payment goes toward principal than
interest.

Compare the total interest paid for the 15-year mortgage verses the total interest paid for the
30 year mortgage what is the difference?
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to explore the effect of paying an additional amount
Use the online amortization schedule
make the extra payment, include it in the monthly
towards the principal each month. To
payments box blank.
payment and leave the number of
each
mortgage, suppose you paid an additional $100 towards the principal
For the 15- year the loan with this additional payment? I Lt.
I -1
it take to pay off
month. How long would

amount of interest paid over the life of the loan?


What is the total
payments.How
the total amount repaid without any extra
repaid to payments?
Compare this total amount you made'the extra principal
much more or less would
you spend if and

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