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1050 Mortgage Project

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Co[ige

]'{athematics

Due date:

In this project we will examine a home loan or mortgase. Assume that you have found a honre
for sale and have agreed to a purchase price of5201,000.

Down Payment: You are going to urake a 10o/o dor,r'n payrnent on the house. Deternrine the
amollnt of your dor,vn payntent and the balance to finance.
Down Puy*.nt

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Morlgage

l^o.rn 3--!3!-r3 3 9

Parl I: 30 year Mortsaee

Monthly Payment: Calculate the monthly payment for a 30 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 amount, r is the annual percent rate for the loan in decimal, and I
the number of years to pay off the loan.] For the 30 year loan use an annual interest rate of
4.97s%r.

PMT

r(;)
1-(1 *i;)-"'

Show work here

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PnT

is

=
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= LlSl-qEtzS
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s
PMt = 5-8z-qq

Monthly Payment for a 30 year mortgage

Note that this monthly payment covers only the interest and the principal on the loan. It does not
cover any insurance or taxes on the property.
Amortization Schedule: In order to summarize all the information regarding the amortization of
a loan, construct a schedule that keeps track of the payment number, the principal paid, the
interest, and the unpaid balance. A spreadsheet program is an excellent tool totevelop an

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amoftization schedule. \\'e can use a free amortization spreadsheet on the r,veb.
The r,veb address is: http:iiu'ux'.bretuhissel.net/arnortization/amofiize.html. Enter the amount
of the loan, i.e. the selling price minus the dou'n pavment. the interest rate, and the appropriate
number of years. Check the box to shou, the schedule.

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Amorlization SchedLrle monthl),paymenr for a 30 year rnortga f, 6tG8,3S

(Note: if this is nrore than 2 or 3 cents ditferent fronr your calculation. check yoLri numbers!)
Total interest paid over 30 ,rurr8 f 61
Totalamount paid

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

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I

Number of first payment when more of payment goes toward principal than

interest lq Y

As already mentioned, these payments are for principal and interest only. You will also have
monthly payments for home insurance and property taxes. In 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 35Yo of
your monthly take-home pay. What minimum monthly take-home pay should you have in order
to meet this goal? Show your work for making this caiculation.
Show work here

,
P

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F(=vf =
3S

Y = ZI

1qr

s.l

3S

66.1

Minimum monthly take home pay:

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It is also important to note that vour uet or take-home pa1'(after taxes) is less than vour gross pay
(beforetaxes). Assurringthatvournetpa) is13o/oofyourgrosspa)/.whatrninimumgross
annual salary

will you need to make to have the monthly

net salary stated above? Show your

work for making this calculation.

Show work here.

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=Gszoo.sz-)Fo

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?=

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Minimum gross annual salary

: $ rl E

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II:

Selline the House

Let's suppose that after living in the house for
Part

10 years, you want to sell. The economy

experiences ups and downs, but in general the value of real estate increases over time. To
calculate the value of an investment such as real estate, we use continuously compounded
interest.

Find the value of the home 10 years after purchase assuming a continuous interest rute of 4Yo.
Use the full purchase price as the principal. Show your work.
Show work here.

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fi= Zqq,8s6-aG

Value of home

l0 years after

purchase

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Assumir,g that you can sell the liouse for this amount. use the fbllorvin-e information to calculate
your gains or losses:

Sellingpriceofyourhouse'

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Original dorvn payment

Mortgage paid over the ten years

tla zoz

The principal balance on your loan after ten years

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Do you gain or lose money over the 10 years? How much? Show your amounts and summarize
your results:

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Part

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III: 15 year Mortgage

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will

investigate a 15 year mortgage.

Monthly Payment: Calculate the monthly palirnent 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 amount, r is the annual percent rate for the loan in decimal, and I'is
the number of years to pay off the loan.] For the 15 year loan use an annual interest rate of
4.735%.

PMT

P Gr)

r-(1

*;)-'"

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Pl'4T

1o.,

(4-9

= (s.6s.Grs \
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an 1=qn

PMT=

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PA4T

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fif.o@tro

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Monthly Payment for a I 5 yearmortgage:

Atut

Ft^rr..

F*d

Using the same purchase price and down payment, we

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Use the amortization spreadsheet on the rveb again, tlris tirr,e entering the interest rate and
number of payrnents fbr a 15 y.ear loan.

Arnoftization Schedule rnonthly payment for a l5 year mofigage If t?a S + O

(Note: if this is more than 2 or 3 cents different frorn your calculation, check your numbers!)

6 TZ,|ZG. o O
Total amou nt puidlfE?gzG.oo
Total interesr paid over 1 S y"ur,

Number of first payment when more of payment goes toward principal than interest

Suppose you paid an additional $100 towards the principal each month. How long would it take
to pay off the loan with this additional payment and how will this affect the total amount of
interest paid on the loan? [If you are making extra payments towards the principal, include it in
the monthly payment and leave the number of payments box blank.]

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Total interest paid over the life of the loan with additional $100 monthly payment.
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Length of time to pay off loan with additional payments of

Total amount paid with additional $100 monthly

puy*"nt

$I

00 p".

8 Zrl.5,
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Compare this total amount paid to the total amount paid without extra monthly payments. How
much more or less would you spend if you made the extra principal payments?

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Part

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III: Reflection

Did this project change the way you think about buying a home? Write one paragraph stating
what ideas changed and why. If this project did not change the way you think, write how this
project gave further evidence to support ygur existing opinion about buying a h"ope. Be specific.

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