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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$201,000.

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Down Payment: You are going to make a 10% downpalanent on the house. Determiue the amolint of vciiu rlown payuietit aild illc balance to finance '
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Part I: 30 vear Mortgage Monthly Payment: Calculate the monthly payrnent for a 30 year loan (rounding up to the nearest cent) by using the following formuia. Show your work. [PMT is the monthly loan payment, P is the mortgage amount, r is the annual percent rate for the loan in decimal, and ihe number of years to pay off the loan] For the 30 year loan use an annuai interest rate of
4.975%.

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Ir"4onthiy Payment for a -10 year moilgalle ,

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on the loan- It does not and ne Note that tiris monthly payment covcrs on\qthe Int:'.':' propertf-"col'er any irsurance or taxes oil the Amortization Schedule: in order to sumnaize all the infonnation regarding the amofiization of a loan, construct a schedr,ile that keeps track of the payment number, the principal paid. thc: intelcst, and the uripai<i balance. A spreadshcet prograln is an excelient tool to deveiol-' lttl

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motizaticn schedule. We can use a free mortizationspreadsheet on the web. The web address is: http:/lwww.bretwhissel.net/amortization/amortize.html. Enter the amount of the loan, i.e. the selling price minus the down payrnent, the interest rate, and the appropriate number of years. Check the box to show the schedule.
Amortization Schedule monthly paynsrt for a 30 year mortgage {tG B e'.bY} (Note: if this is more than 2 or 3 cents different fiom your calculation, check your numbers!)
Total interest paid over 30 Total amount paiO

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Notice that the amount of the payment that goes towards the principai and the amount that goes towards the interest are not constant. What do you observe about each,of these values?

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Numbel of fust payrrent when more of payment goes toward principal than interest

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monthly paymen8 for home insurance and property taxes. ln addition, it is helpful to have money left over for those little luxuries like electricity, running water, and food. As a wise home owner, you decide that your monthly principal and interest payment should not exceed 35% of your monthly take-home pay. What minimum monthly take-home pay should you have in order to meet this goal? Show your rvork for making this calculation.
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Minimum monthly take home pay

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It is also important to note that your net or take-homepay (after taxes) is less thanyour grcss pay (before taxes). Assuming that your net pay is 73% of your goss 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-

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Part

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 reai estate increases over time. To calculate the value of an investment such as real estate, we use continuously compounded interest.

II:

Selling the House

Find the value of the home l0 years after purchase assuming a continuous interest rate of Use the full purchase price as the principal. Show your work.
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Value of home 10 years after purchase

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Assuming that you can sell the house for this arnount, use the following information to your gains or losses: Selling price of your house ,iq::{t"

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The principal balance onyour loan

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Do you gain or lose mt-lncy ot,er tl:c 1C y rars? iiou' iliuch? Sil,.rrl yt-rur allit)uiits atrd sumtntnze

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Part

III:

15 year

Mortgage

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Using the same purchase price and downpaymort, we

will investigate a 15 year mortgage.

Monthly Payment: Calculate the monthly payrnent for a 15 year loan (rounding up to the nearest cent) by using the following formula. Show your work! IPMT is the monthly loan payment, P is the mortgage anount, r is the annual percent rate for the loan in decimal, and the number of years to pay off the ioan] For the 15 year loan use an annual interest rate of
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Monthiy Palanent for a 15 year mortgage

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the interest rate and Use the amofiization spreadsheet on the web again, this time entering number of paynents for a 15 year loan-

Plb3 -. +O Amortization Schedule monthly paynent for a 15 year mofigag" your numbers!) (Note: if this is more than 2 or 3 ients different from your calculation, check
rotal interest paid over ts
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Nurnhc:.of first pe)Ircrt u,hcn morc orpal.,ment goes [ou'ard principal th'rn interest

-yLXg eI lloiv ir,-its rvortlrl it take S,ppose you paid al additionai Sl00 ior.'arris rhe principal each ir^ronth. the toial amount this affect will how and ,o puy ofithe'loan wirh this additional payment :f , t principai, include it in the towards iot"r.rt paid on the loan? [I{ you are making extra payments . I '/ the monihiy pa;,ment arid leave the number of payments box biank'] i
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Length of time to pay otTioanwith additional payme,nts of

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puylT,*t, Total interest paid over the iife of the ioanwith additional $100 monthly
Toral amount paid with additional $100 month

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paymarts- How Compare this total amount paid to the total arnount paid without extra monthly pai'rncnts? principal the extra you made -r"h *or" or less would you spend if

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III: Reflection

paragraph stating Did this proj ect change the rvay yori think about buying a homc? \Vrite ore u'rite how this thinli, you r.vay w-hat irieis changed a1a rvUy. ittt ir project did not change the Be specific' honleabout buying a pro-j ect gave further evidence to suppofi your existing opinion

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