Home Mortgage

By: Shiylee Williams, Ailyana Mata, and Sara Ahmed

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Buying a house is a big step in life, and it could be your forever home, or you personal

prison, depending on how well you are prepared. It takes a lot more than having enough money

for a house, you have to make sure you have enough for monthly payments, while also having

money in savings and for emergency purposes. There might be a moment when you need a loan

to help cover the down payment and home mortgage. In this project, we are going to look at

finding the plans for buying a house and what we would need to do to afford it and keep a stable

amount of money for savings and other necessities. As for the floor plan to this house we didn’t

need to much all we took a look at was a house with three bedroom, two and a half baths and

one other factor that we decided to look at was the area, in which we picked Herriman, Utah. We

will find the home mortgage for the house we found, and figure out how much insurance and

possible loans would be.

We first began with finding a house that has a mortgage of $272,465 and we chose this

house for it’s three bedrooms and three bath as well as its location.To avoid paying mortgage

insurance, we decided our down payment would be 20% of the total mortgage which is $54,493

and we can afford it after saving up for 2 years with our mechanical engineering salary. That

would also make our total loan only $217,972, since we would subtract the down payment from

our total loan. The two banks we contacted to buy the house from was Wells Fargo and The

Bank of America. Starting with Wells Fargo, we used the 30, 20, and 15 year fixed APR to

calculate our monthly payments. We used the rates seen in Table 1 and plugged in those values

P ( AP R )
into the loan payment formula, which is PMT = [1−(1+ AP Rn )(−n/Y ) ] . The PMT is how much we pay
n

monthly, so that is what we are looking for, the P is the principal amount, basically the cost of

the loan we took out, which is $217,972. The APR, n, is the rate is the amount of times that it is
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compounded, and Y is the amount of years it will be until the loan is paid off. So when we

217972( .04857
12 )
plugged, [1−(1+ .04857 (−12/30) those values in the equation, we got $1151.15/month for the 30 year
12 ) ]

loan, $1411.09/month for the 20 year loan, and $1660.13/month for the 15 year loan. If you use

the APR in Table 1 then our results are in line with what our lender said.

To find out the total cost of the payment we have to add the closing cost as well as the

monthly payment for the amount of time you spent paying off that loan. We searched up on

average how much closing costs were and we found out that they are between 2% and 5% of

your loan, so we went with the average of that and used 3.5% percent of our loan for our closing

costs which is $7629.02. We just started with the 30 year loan, so we took our monthly cost and

then we multiplied it by 12 because we make 12 payments in a year and then we multiplied it

again by 30 because we’ll be paying it off for 30 years and then we also add the closing cost so

our total cost was $422,043.02 and then we did the same thing for the other two using their

proper monthly payments and time. The total cost of the 20 year loan was $346,290.62 and the

15 year loan was $306,452.42. To find how much we paid in interest in terms of money we just

subtract the the total cost of the loan from the principal amount, so far the 30, 20, and 15 year

loan $204,071.02, $128,318.62, and $88,480.42 was paid in interest. To find the amount in

percent however you put the loan amount as the denominator and the total cost as the numerator

minus 1 and then multiply it by 100. We got 94%, 59%, and 41% for the 30, 20, and 15 year

loans respectively.

In the event in which we can afford to pay an extra $200 to our monthly payment would

save us many years in paying off our mortgage. If we decided to go with the 30 year loan than

we would pay it off in about 22 years and would save $59,227.82 in interest which I found using
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the equation from earlier to find the total cost of the new amount of time it would take and

subtracted it from the total cost of the 30 year loan calculated earlier. However if we went with

the 20 year loan, it would only take us about 17 years to pay it off and we would be saving

$20,063.54 in interest. For the 15 year loan it would shorten down to about 13 years and

$11,635.73 of interest would be saved. We believe that the extra $200 should go towards the

mortgage since the average person wouldn’t know how to use mutual funds to their benefit and

that would make it very risky, but however if this was someone who knew the stock market well

and how to make a profit they should because I used a mutual fund calculator​7​ to find roughly

the amount you would be making over the course of the years that you were to pay back you

loan. So if you put $200 every month for 30 years with 12% return you would make $2,157,114

although since it is a mutual fund you would have to split it with the people who are also apart of

your mutual fund, but since they would also have to contribute the overall total would be much

higher. However if you were to do the put that money only in for 20 or 15 years you would end

up with $463,022 or $197,048.

Now switching over to Bank of America, we used their 30, 20, and 15 fixed year APR

which can be found in Table 2. So using the same equation and method was previously

mentioned, we found the monthly payments to be $1145.86/month for the 30 year loan,

$1395.88/month for the 20 year loan, and $1640.53/month for the 15 year loan. If you use the

APR shown in Table 2 you will find that our results are accurate to what they lender said.

For the total costs this time we can’t just use the $7629.02 as we did before because the

Bank of America uses points which are just a percentage of the loan and they become a part of

the closing costs. Also if you look back at Table 2 they points also change with the loan that you
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chose so they closing costs for each of the loans will be different. So when we do the 30 year

fixed rate payment we multiply .624% to the principal amount which turns out to be $13,601.45

and to find the total cost of the 30 year loan payment we used the same method previously

mentioned, so the total will be $426,111.05. The 20 year loan has .0629 points, which then

makes the closing costs $13,710.44 and to figure this out we multiplied .0629 by the loan amount

and then we added that to the monthly payment multiplied by 12 for the amount of months and

then by the 20 years you take to pay if off and adding that to the amount you pay, the total is

384,721.64. For the 15 year loan the points are .0989 and that makes a closing cost of $21,557.43

and using that our total would be $316,852.83. The interest rate, in dollars, for the 30, 20, and 15

year loans are $208,139.05, $130,749.64, and $98,880.83 respectively. They interest rate, in

percent, for the 30, 20, and 15 fixed rates are 95%, 60%, and 45%. The results that we got with

the Bank of America seem to pretty reasonable and accurate when compared to our results from

Wells Fargo.

Like unto the Wells Fargo estimations we had done earlier, with adding an extra $200 a

month, we did this with the rates of The Bank of America. How this was set up was by taking the

amount of house, after taking out the down payment, and then took the rates from Table 2 to a

source that acted like a calculator that estimated the addition of the extra $200 into the monthly

payment. After this was done the results for the 30 year mortgage rate was that the monthly

payment would then change form $1,120 a month to $1,321. With this increase over time instead

of the total mortgage of the house being $403,445 it would drop to $347,069 which a difference

of $56,375.80. Considering this change, expected with the additional extra $200 a month, it seem

that the overall amount of paying the mortgage off decreases as well.
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The initial payment on a 30-year $210,001.00 5-year Adjustable-Rate Loan at 4.25% and

78% loan-to-value (LTV) is $1,033.08 with 2.5 points due at closing. The Annual Percentage

Rate (APR) is 5.277%. After the initial 5 years, the principal and interest payment is $1,156.86.

The fully indexed rate of 5.375% is in effect for the remaining 25 years and can change once

every year for the remaining life of the loan. Payment does not include taxes and insurance

premiums. The actual payment amount will be greater. Rate is variable and subject to change

after 5 years.

In summary, we started with finding an affordable house and then we made our down

payment 20% of the cost of the house so we wouldn’t have to pay for mortgage insurance but

because we did that we subtracted the down payment from the total price of the house and that

new value became our loan amount or principal. To figure out what the best deal that we could

still pay for is, we decide to use 30, 20, and 15 year fixed rates, but we also checked the

adjustable rate mortgage as well. We were able to find the monthly payments using this equation

P ( AP R )
PMT = [1−(1+ AP Rn )(−n/Y ) ] . We plugged in the various APR rates with the proper amount of years and
n

we were also very accurate to what the lender had said. We also figured out that the 15 year

mortgage with Wells Fargo would be the best deal for us. To calculate the closing costs you take

a percentage of the principal amount, usually in between 2% and 5% but in our case 3.5%, and

then you add that to your monthly payment multiplied by 12, for the 12 payments you make a

year, and by the amount of years you chose to pay it off in. We also figured out how much of our

payments went into interest. To find the dollar amount of interest we took the total cost and

subtracted it from the loan amount and to find the percent of interest by dividing the total amount

from the principal amount then minus 1 and multiply it by 100. We also determined that if one
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could invest well it would be more beneficial to them to spend the extra $200 they had into a

mutual fund since it would give them more money than what they would save if they included

the $200 into their mortgage payments.

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Table 1 : Wells Fargo

Table 2 : Bank of America

Table 3: Bank of America

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Sources:

1. https://www.wellsfargo.com/mortgage/rates/

2. https://www.bankofamerica.com/mortgage/fixed-rate-mortgage-loans/

3. https://www.bankofamerica.com/mortgage/adjustable-rate-mortgage-loans/

4. https://www.zillow.com/mortgage-calculator/?homePrice=272465&downPayment=5449

3&rate=4.019&term=Fixed15Year&includeTaxesInsurance=false&showAdvanced=true

5. https://www.google.com/search?safe=strict&hl=en&authuser=0&ei=a_8IXL21FYiijwSk

9KG4Cw&q=how+to+figure+out+closing+cost&oq=how+to+figure+our+closing&gs_l=

psy-ab.3.0.0i13l6j0i13i30l4.54154.61594..63548...0.0..2.1121.12037.1j0j5j7j6j3j3j1......0

....1..gws-wiz.......0j0i71j0i10j35i39j0i67j0i131j0i22i30j0i8i13i30.0uj7vRyNwF0

6. https://www.bankrate.com/calculators/home-equity/additional-mortgage-payment-calcula
tor.asp x
7. https://groww.in/calculators/mutual-fund-returns-calculator/
8. https://www.google.com/search?safe=strict&ei=ymMKXLWoAsrFjgTclZvoDQ&q=Wha
t+is+the+average+rate+of+return+on+a+mutual+fund%3F&oq=What+is+the+average+r
ate+of+return+on+a+mutual+fund%3F&gs_l=psy-ab.3..0i30.467395.467395..468480...0.
0..0.89.89.1......0....1j2..gws-wiz.......0i71.VcqPlEMKaG8
9.