Math 1030 - Finance Project

Name: KATHLEEN RICE

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.

The listed selling price is $289,900.

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

The down payment is $57,980. The amount of the mortgage is $231,920.

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: America First Credit Union.

Rate for 15-year mortgage: 4.250%. Rate for 30-year mortgage 4.875%.

Name of second lending institution: Bank of America.

Rate for 15-year mortgage: 4.125%. Rate for 30-year mortgage 4.750%.

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: $1730.05. 30-year monthly payment $1209.80.

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. . 12/1/18 $1,209.80 $918.02 $291.79 $231,628.21
2. . 1/1/19 $1,209.80 $916.86 $292.94 $231,335.27
60. . 11/1/23 $1,209.80 $841.43 $368.38 $212,202.71
120. . 11/1/28 $1,209.80 $742.89 $466.91 $187,211.43
240. . 11/1/38 $1,209.80 $459.71 $750.10 $115,386.79
300. . 11/1/43 $1,209.80 $259.07 $950.73 $64,499.13
360. . 11/1/48 $1,209.80 $4.77 $1,205.03 $0.00 .
total ------- ---------- $203,609.62 $231,920.00 ---------

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

The total amount paid is the number of payments times the monthly payment.

The total interest paid is 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 186 is the first one in which the principal paid is greater than the interest
paid.

The total amount of interest is $28,310.38 (more or less) than the mortgage.

The total amount of interest is 12.21% (more or less) than the mortgage.

The total amount of interest is 87.79% of the mortgage.

15-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
1. 12/1/18 $1,730.05 $797.23 $932.82 $230,987.18
2. 1/1/19 $1,730.05 $794.02 $936.03 $230,051.15
50. 1/1/23 $1,730.05 $626.41 $1,103.63 $181,125.74
90. 5/1/26 $1,730.05 $464.03 $1,266.01 $133,725.81
120. 11/1/28 $1,730.05 $326.76 $1,403.29 $93,652.87
150. 5/1/31 $1,730.05 $174.59 $1,555.46 $49,234.65
180. 11/1/33 $1,730.05 $5.93 $1,724.12 $0.00
total ------- ---------- $79,488.64 $231,920.00 ---------

Payment number 1 is the first one in which the principal paid is greater than the interest paid.
The total amount of interest is $152,431.36 (more or less) than the mortgage.

The total amount of interest is 65.73% (more or less) than the mortgage.

The total amount of interest is 34.27% 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 $168,235.51

The total amount of interest paid with the $100 monthly extra payment would be
$35,374.11 (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
17.37%(more or less) than the interest paid for the scheduled payments only.
 The $100 monthly extra payment would pay off the mortgage in 25 years and 6 months;
that’s 54 months sooner than paying only the scheduled payments.

Summarize what you have done and learned on this project in a well written and typed paragraph
of at least 100 words (half page). Because this is a math project, you must compute and
compare numbers, both absolute and relative values. Statements such as “a lot more” and “a lot
less” do not have meaning in a Quantitative Reasoning class. Make the necessary computations
and compare

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

(2) the 15-year mortgage interest to the 30-year mortgage interest

(3) the 15-year mortgage to the 30-year mortgage with an extra payment

Also, keep in mind that the numbers don’t explain everything. Comment on other factors that
must be considered with the numbers when making a mortgage.

After this exercise, I have realized how terrible an idea of a 30 year mortgage is. In the long
run, it is a good idea if you cannot afford paying the $520 more each month. In reality,
you will be paying almost as much as the house is worth in interest if you select the 30
year mortgage. Seeing such a huge difference in over $100,000 between the 15 year
mortgage and the 30 year, makes me feel sickened to the idea that people can be roped
into the longer mortgage plan, just so others earn more money. in order to cut the 30
year mortgage down to a 15 year for this home, an individual must pay roughly $520
more each month. Even then, the interest is still around $20,000 more for the 30 year.
Contrasting the payments, the 30 year saves you exactly $520.25 per month. However,
if you were able to pay the $520.25 more each month, it would be wiser to go with the
15 year plan. This way, you will definitely save more in the long run. To conclude, if
the extra $520 were on hand to begin with, they shall go with the 15 year mortgage, pay
an extra down payment, and pay off the loan 54 months earlier, saving them $35,374.11
in interest. After having calculated how much interest you will end up having to pay, I
believe a 30 year mortgage is beyond ridiculous.