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Math 1050 Mortgage Project

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Due dare:

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In this project we will examine a home loan or mortgage. Assume that you have found a home
for saie and have agreed to a purchase price oi $201,000.

Ilown Payment: You

are going to make a 109,i, down payment on the house. Deterrnine the
amount of your down payment and the balance to finance.
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Mortgage Amount

Part I: 30 year Mo_rteage

Ntonthly Payment: Calculate the monthly payment for a 30 year loan (rounding up to the
nearest cent) by using the following formula. Sho-w your work. [PMT is the monrhlv loan
pa)'ment. P is the mortgage arnount. r is the annual percent rate for the loan in decimal, and I
the number of years to pay off the loan.] For the 30 year loan use an annual interest rate of

is

4.9'750i.

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Shorv u'ork here

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lVlonthly Payment fbr a 30 year nlortga-qe

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Note that this monthly payment covrs only the interest and the principal on the loan. It does not
cover any insurance or taxes on the propefiy.
Amortization Schedule: In order to summarize ail the information regarding the amortization of
a loan, construct a schedule that kee'ps track of the pa)rnent nutnber, the principal paid, the
rnterest, and thc unpaid balance. A spreadsheet program is an excellent tool to develop an

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amortization schedule. We can use a free amortization spreadsheet on the web.

The rveb addrcss is: http:;"u'u'q..bretrvhissel.nct linrclrtrzalrun,arnortizc.html. Enter thc amount
of the loan, i.e. the selling price ntinus the down payment, the interest rate, and the appropriate
number of years. Check the box to show the schedule.

Amonization Schedule monthly payment for a 30 year mortgag- I 1f, f .gS

(Note: if this is more than 2 or 3 cents different from your calculation, check your numbers!)
Total interest paid over
Torai amount paio

3O

years

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Notice that the amount of the payment that goes towards the principal and the arnount that goes
towards the interest are llot constant. What do you obsen'e about each of these values?

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Number of first payment

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lten more of'payment goes toward principal than

interest 14q

As already mentioned, these pay'ments are for pnncipal and interest only. You will also have
monthly payments for home insurance and proper6," taxes. In acldition, it is helpfui to have
r"noney left over fbr those linle luxuries like electricitv, running water. and fboci. As a rvise home
owner, you decide that ,v-our monthly principal and interest payment should not exceed 35o/, of
your monthly take-honre pay. What minimum monthly take-home pay should you have in order
to mt:et this goal'l Show your work fbr making this calculation.
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Minimum monthlv take home

pay

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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! what minimum gross
annual salary will you need to make to have the monthly net salary stated above? Show your
work for making this calculation.
Show work here.

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Minimum gross annual salary: {$

Part

II:

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Selling the House

Let's suppose that after living in the house for l0 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 continuously compounded
interest.

Find the value of the home 10 years after purchase assuming a continuous interest rate of
Use the full purchase price as the principal. Shorv your work.

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Show work here.

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value of home l0 years after

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Assuming that you can sell the house fbr this amount, use the following information to calculate
your gains or losses:
Selling price of your

house

Original down pay.rnent

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Mortgage paid over the ren V.utt

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The principal balance on your loan after ten years

Do you gain or lose money over the l0 years? How much? Show'your amounts and summarize
your results:

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Part

III: 15 year Mortgase

Using the same purchase price and dorvn payment, we will investigate a l5 year mortgage.

Monthly Payrnent: Calculate the monthly payment for a 15 year loan (Iounding,up to the
nearest cent) by using the following formula. Show your workl IPMT is the monthly loan
payment, P is the mortgage amount, r is the annual percent rate for the loan in decimal, and I is
the number of years to pay off the loan.] For the l5 year loan use an annual interest rate of
4.'7350h.

PMT

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Show work here.

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Monthly Pal,rnent for a 15 year mortgage =

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Use thc atnortization spreadsheet on the web again, this time entering the interest rate and

number ot'payrnents for a

l5 ycar loan.

Amortization Schedule monthly pa.vment for a l5 ,vear mortgag.l-!\g!-"9

(Note: if this is more than 2 or 3 cernts different from your calculation. check your nurnbersl)
-l'otai

interest paitl over t S years-

'roral arnounr

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pald-l- 25-?-._t Zt. S I

Number of lirst payrnent w'hen rnore of payrnent goes tor.vard principal than interest

- 5

Suppose you paid an additional $ 100 torvards the principai each month. How' long would it take
ro pay off the loan with this additional payment and how will this affect the totai amount of
you are niaking extra paynents towards the principa], include it in
interest paid on the loan?
the rlontirly paymelrt and leave the number of pavments box blank.]

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Length of time to pay ofT loan rvith additionai payments of

lofal interest paid over the life ot'the loan u,ith additional
Tolal amourrt paid i.vith atlditional

$i

00 rnonthly

$I

100 per month

00 monthly

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Compare this total amount paid to the total amount paid wrthout extra monthly payments. How
much more or iess wottld ,v.'ttu spend if yor.i made the extra principal payments?

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III: Reflection

Did this project change the way you think about buying a horne'/ Write one paragraph stating
what ideas changed and rvhy. If this project did not change the rvay you think, write how this
project gave further cvidence to support your cxisting opinion about buyin-e a horne. Be specific.

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