Reflective Writing for Mortgage Project

In this lab we calculated the cost of buying a $217,100 home over the span of 30 years

with a 4.59% interest rate compared to over 15 years with a 3.65% interest rate, and then

compared that to a 30 year plan with extra added onto the monthly payment. We wanted to learn

how much the monthly payment would be for each payment plan at their respective rates.

For the 30 year mortgage plan we’ll have a 4.59% interest rate. We’ve paid a down

payment of 10%, or 21,710, leaving us to get a loan of $195,390. When we convert 4.59% into a

decimal and understand that we compound monthly over 30 years, we’re able to use a loan

formula to quickly calculate how much we will be paying every month.

Loan formula:

D = loan amount ( interest rate as a decimal / number of times compounded in a year) /

(1 - (1 + interest rate / compounds a year) ^ how long the loan is (negative) * number of

compounds a year)

Or

D = P0 (r/k) / (1 -(1 + r/k)^-Nk)

Plugging our numbers into this equation, we have our formula for our 30 year plan:

Monthly payments (d) = $195,390 (0.0459/12) / (1 - (1 + 0.0459/12) ^ -30 * 12)

This comes to a monthly payment of $1,000.49.

 This equation changes slightly when calculating our 15 year plan. Our interest rate then

becomes 3.65%, or 0.0365, and our year to 15.

D = 195,390 (0.0365/12) / (1 -(1 + 0.0365/12) ^ -15*12)

This comes to a monthly payment of $1,411.25.

We then wanted to see how long it would take to pay off the 30 year mortgage if we paid

$100 extra a month, making $1,100.49 our monthly payment. We’re now looking for the N

value, so our equation changes. Because N is an exponent in the loan equation we can already

tell we’re going to be using logs to solve this. An equation is provided to solve for N with logs:

N = log (12d / 12d - P0r) / 12 log(1 + r/12))

Plugging our numbers in, the equation looks like this:

N = log (12 * 1,100.49 / 12 * 1,100.49 - 195,390 * 0.0459) / (12 log(1 + 0.0459 / 12))

We learned that it would take 24.81 years to pay off this home with $100 extra added

each month.

In this lab we also calculated how much we would gain by selling the house after 10

years. We used the loan formula to calculate the principal balance on the mortgage, and added

our down payment and the amount we’ve already paid on the mortgage. We subtracted that value
from the future value of the home, which we found using the compound interest formula, and

learned that selling the home after 10 years would put $22,657.01 into our bank account.

I believe that this kind of math can be applied to the real world. It’s beneficial for

homeowners, or anyone taking out a loan, to have an idea of how long they want to pay off that

loan and how much they will need to pay. This can give greater confidence on paying off that

loan. As someone who has a goal of getting out of debt as quickly as possible I would love to

know how long it will take to pay off a loan and how much I can be paying every month.

This type of analysis is not only applicable to house mortgages, but loans when buying

cars or education.

If I were a mortgage broker, knowing the details of this assignment and being familiar

with the equations used would increase your clients trust in me. I would be able to confidently

and accurately give my clients the information they need to move forward into their future.

In this assignment, we explored many different options of paying off a mortgage: over 30

years, over 15 years, and over 30 years with paying extra.

We explored three payment options when it comes to this mortgage, each with its own

pros and cons. With a 30 year mortgage you will make monthly payments of $1,000.49 and a

total of $360,176.40. This is the most expensive option but it allows for more money for other
expenses during the month. The 15 year plan has monthly payments of $1,411.25 a month with a

total of $254,025. This is the cheapest option but will not leave much for other expenses or

savings with the take home pay. The 30 year plan with extra payment (assuming you add only

$100 extra per month) has $1,100.49 per month and a $327,637.88 total. This plan allows for

more flexibility throughout the month with your take home pay, but it does shorten the time and

cuts the total cost by $32,538.52.

I’ve always known that math is useful in everyday situations, but I haven’t been quick to

use more complicated equations. Of course I divide and multiply on a daily basis, but I haven’t

thought to calculate my own mortgage, sales tax for my groceries, and more. I feel a lot more

confident now using larger equations to find larger numbers.

In Part I, you were asked to "do a search on the internet for the "average salary" of either

your future profession or by your future college degree and compare it with" the minimum

annual gross salary you'd need in order to afford the house. Comment on what you found out.

Does it change your views on either purchasing a home or your choice of major?

I have a profession now as a massage therapist. In Utah I could earn an annual salary of

$51,387 with a $4,282 monthly pay. This varies depending on where you work and that is a lot of

hours which will be very taxing on the body. Purchasing a home with the salary I could have I

would want to find a cheaper home, probably found in a less populated area. If I were to change

my view on my career, I would be interested in becoming a registered Dietitian, earning $58,141

annually and will not be as taxing on the body.