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This document outlines a mortgage project to calculate costs for purchasing a $201,000 home with 10% down payment. It examines costs for 30-year and 15-year mortgages at different interest rates. For a 30-year mortgage at 4.975% interest, the monthly payment is $1,080.51. Over 30 years, total interest paid is $211,010. To afford the $1,080.51 monthly payment, the minimum monthly take-home pay needed is $3,080.51, requiring a minimum gross annual salary of $55,000. The document also calculates the home's value after 10 years at 4% interest ($262,056.16) and the owner's gain

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89 views4 pages

Math

This document outlines a mortgage project to calculate costs for purchasing a $201,000 home with 10% down payment. It examines costs for 30-year and 15-year mortgages at different interest rates. For a 30-year mortgage at 4.975% interest, the monthly payment is $1,080.51. Over 30 years, total interest paid is $211,010. To afford the $1,080.51 monthly payment, the minimum monthly take-home pay needed is $3,080.51, requiring a minimum gross annual salary of $55,000. The document also calculates the home's value after 10 years at 4% interest ($262,056.16) and the owner's gain

Uploaded by

api-317213984
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Math 1050 Mortgage Project


Name

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Due date:

M a t h e n . a u c s Depai-miejn

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In this projecl we w i l l examine a home loan or mortgage. Assume that you have found a home
for sale and have agreed to a purchase priee o f S201,000.

Down Payment: Y o u are going to make a 10% down payment on the house. Determine the
amount o f your down payment and the balance to Unance.
D o w n Payment

Mortgage Amount

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Pait I : 30 year Mortgage


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

PMT

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Show work here

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Monthly Payment for a 30 year mortgage ^


Note that this monthly payment covers only the interest and the principal on the loan. It does not
cover :iny insurance or taxes on the properly.
Amortization Schedule: In order to sumniari/e all the inlbrmalion regarding the amortization o f
a loan, construct a schedule that keeps track o f the payment number, the principal paid, the
interest, and Ib.c unj^aid balance. A sprcadsiiect i^rogram is an excellent tool to dcA'clop an

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


The web address is: httn://vv\\y\'.brctwhis.sel.]ieL''am()rti/ation/amoitizc.html. Hnter the a m o u n t
o f the loan. i.e. the selling price minus the down payment, the interest rate, and the appropriate
n u m b e r o f years. Check the box to show the schedule.
Amortization Schedule monthly payment for a 30 year mortgage ^ l

(Note: i f this is more than 2 or 3 cents different from your calculation, check your numbers!)
Total inierest paid over 30 years ^ 1 ~1, 1 Ofa. O o
Total amount paid ^ B M 6. bOb-OQ
Notice that the amount o f the payment that goes towards the principal and the amount that goes
towards the interest are not constant. What do you observe about each o f these values?

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Number o f first payment when more o f payment goes toward principal than interest I ^ ' d

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A s already mentioned, these payments are for principal and interest only. Y o u w i l l also have
monthly payments for home insurance and properly taxes. In addition, it is helpful to have
money left over for those little luxuries like electricity, running water, and food. As a wise home
owner, y o u decide that your monthly principal and interest payment should not exceed 35% o f
your monthly take-home pay. What minimum monthly take-home pay should you have in order
to meet this goal? Show your work for making this calculation.

Show work here

M i n i m u m nuiiUlily lake home pay ^-^

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II is also important to note that your net or lake-home pay (after taxes) is less than your gross pay
(before taxes). Assuming that your net pay is 73% o f your gross pay, what minimum gross
amiual salary w i l l you need to make to have the monthly net salary stated above? Show^ yotir
work for making this calculation.
Show work here.

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M i n i m u m gross annual salary ~ _

Part I I : Selling the House


Let's suppose that after living in tlie house for 10 years, you want to sell. The economy
experiences ups and downs, but in general the value o f real estate increases over time. To
calculate the value o f an investment such as real estate, we use continuously compounded
interest.
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Find the value o f the home 10 years after purchase assuming a continuous interest rate o f 4%.
Use the full purchase price as the principal. Show your work.
Show work here.

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Value ol home 10 years after purchase

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A s s u m i n g that y o u can sell the house f o r t h i s a m o u n t , use the f o l l o w i n g i n f o r i n a t i o n l o calculate


y o u r g a i n s o r losses;
i
S e l l i n g p r i c e o f y o u r house
Original d o w n payment

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M o r t g a g e p a i d o v e r ihe ten years


T h e p r i n c i p a l balance on y o u r loan after ten years

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D o y o u g a i n o r lose m o n e y o v e r the 10 years'!' H o w m u c h ? S h o w y o u r a m o u n t s and s u m m a r i z e
y o u r results:

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Part I I I : 1 5 year M o r t g a g e

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U s i n g the same purchase price and d o w r r p t r y m e n T w e w i l l investigate a T 5 year m o r t g a g e .


Monthly Payment: C a l c u l a t e the m o n t h l y p a y m e n t for a 15 yeai- loan ( r o u n d i n g u p to the
nearest c e n t ) b y u s i n g the f o l l o w i n g foiTnula. S h o w y o u r w o r k ! [ P M T is the m o n t h l y loan
p a y m e n t , P is the m o r t g a g e a m o u n t . / is the annual percent rate f o r the l o a n in decimal, and T i s
the n u m b e r o f years t o pay o i l the loan.J F o r the 15 yeai- l o a n use an a n n u a l interest rale o f
4.735%.

PMT

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Show work here.

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M o n l h l y P a y m e n t for a 1 5 year m o rt tggaaug ec -

301S

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