Math 1030

Name: Katelin Graham & Lauren Hyer

Buying a House

Select a house from a real estate booklet, newspaper, or website. Find something reasonable –
between $100,000 and $350,000. In reality, a trained financial professional can help you
determine what is reasonable for your financial situation. Take a screen shot of the listing for
your chosen house and attach it to this project. Assume that you will pay the asking price for
your house.

House cost 275000

The listed selling price is $275,000.

Assume that you will make a down payment of 20%.

The down payment is $55,000. The amount of the mortgage is $220,000.

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: Lending Tree.

Rate for 15-year mortgage: 4%. Rate for 30-year mortgage 5%.

Name of second lending institution: Quicken Loans.

Rate for 15-year mortgage: 4.5%. Rate for 30-year mortgage 5.5%.

Assuming that the rates are the only difference between the different lending institutions, find the
monthly payment at the better interest rate for each type of mortgage.

15-year monthly payment: $1627.31. 30-year monthly payment $1181.

These payments cover only the interest and the principal on the loan. They do not cover the
insurance or taxes.

To organize the information for the amortization of the loan, construct a schedule that keeps
track of: (1) the payment number and/or (2) the month and year (3) the amount of the payment,
(4) the amount of interest paid, (5) the amount of principal paid, and (6) the remaining balance.
There is an MS excel file included on our CANVAS page if you are using a PC or you can also
use any online programs that are available such as the one on Brett Whissle’s website
http://bretwhissel.net/cgi-bin/amortize​ if you are using a MAC.

It’s not necessary to show all of the payments in the tables below. Only fill in the payments in
the following schedules. Answer the questions after each table.

30-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
1. ​. 11/19 1181 733 317 219683
2. ​. 12/19 1181 732 318 219365
60. ​. 11/24 1181 648 403 119851
120. ​. 11/29 1181 558 492 167057
240. ​. 11/39 1181 317 733 94,396
300. ​. 11/44 1181 155 895 45,622
360. ​. 11/49 1181 3 1047 $0.00 ​.
total ------- ---------- 205,160 220,000 ---------

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

The total amount paid is the number of payments times 220,000.

The total interest paid is the total amount paid minus 205,160.

Use the proper number to fill in the blanks and cross out the improper word
in the parentheses.
Payment number 128 is the first one in which the principal paid is greater than the interest paid.

The total amount of interest is $14,840 less (more or less) than the mortgage.

The total amount of interest is 7% less (more or less) than the mortgage.
The total amount of interest is 93% of the mortgage.
15-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
1. . 11/18 1627 917 823 219177
2. . 12/18 1627 913 827 218350
50. . 1/22 1627 776 964 185223
90. . 5/25 1627 601 1138 143185
120. . 11/28 1627 384 1356 90835
150. . 5/30 1627 279 1461 65445
180. . 11/33 1627 7 1733 $0.00
total ------- ---------- 72,860 220,000 ---------

Payment number 26 is the first one in which the principal paid is greater than the interest paid.
The total amount of interest is $147140 less (more or less) than the mortgage.

The total amount of interest is 66% less (more or less) than the mortgage.

The total amount of interest is 33% of the mortgage.

Notice how the 15-year mortgage reduces the amount of interest paid over the life of the loan.
Now consider again the 30-year mortgage and 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 $167,355.

The total amount of interest paid with the $100 monthly extra payment would be $37,805
less (more or less) than the interest paid for the scheduled payments only.

The total amount of interest paid with the $100 monthly extra payment would be 19.43%
less (more or less) than the interest paid for the scheduled payments only.
 The $100 monthly extra payment would pay off the mortgage in 24 years and 3 months;
that’s 69 months sooner than paying only the scheduled payments.

(1) the 15-year mortgage payment to the 30-year mortgage payment

After calculating everything, it is easy to see that the 15 year mortgage is the better offer.
Individuals pay $1627 every month for 15 years. They end up paying $292,860 for their
mortgage while the 30 year loan costs $425,160. Although the 30 year loan has cheaper monthly
payments, customers pay $132,300 more compared to the 15 year loan.
(2) the 15-year mortgage interest to the 30-year mortgage interest
The 15 year mortgage interest totals up to be $72,860. The 30 year mortgage interest
totals up to be $205,160. Right here, one can see a dramatic difference of $132,300. Although
the difference in interest rates is only 1%, the rate and amount of time play a crucial role in the
final cost. It would be smarter to do the 15 year mortgage rate because a customer would pay
$132,300 less. Oftentimes, it is not possible for individuals to make these higher payments
associated with the 15 year mortgage. So those individuals are stuck paying more money for the
30 year mortgage.
(3) the 15-year mortgage to the 30-year mortgage with an extra payment
When individuals cannot afford the 15 year mortgage, they should take the 30 year
mortgage and pay extra payments. The normal 30 year mortgage pays $425,160. The 30 year
mortgage with the extra $100 payment pays $372,771. By just paying $100 extra a month, an
individual would save $52,389.