Mortgage Payments of a Botanist in New York

Emerson Gifford

M =P

[r(1+r) n]
[(1+r) n1]

M= Monthly Payment (25% of income/12)

P= Principal (Money borrowed)
r= Interest Rate/12
n= Number of Payments

Above is the equation to find the monthly payment for a mortgage on a home. However we
arent trying to find the monthly payment first, we need to find my maximum Principal, or
money I can borrow from the bank.
So now we have
to set this equation to P.

P = M ([r(1+r) n ]1[(1+r) n 1])

Alright, so now we can find our Principal! Once we have it, we can find the price range of our
first home.

First,

lets place a number for M. The bank will not allow you to pay more than 25% of your
yearly income on just the mortgage, so 25% of our yearly income 12 (for 12 months in a year)
will be our number for M. In the future, I would like to be a botanist, and study at a university.
So I have to find a good salary for a botanist. According the to the Bureau of Labor Statistics, the
2010 median income for biochemists and biophysicists -- the umbrella of scientists botanists are

classified under -- was $79,390 per year. The lowest 10 percent earned less than $43,050, and the
top 10 percent earned more than $142,420.
Looking at these salaries, Im going to set it to around the middle, $50,000 yearly. 25%
of the yearly income is $12,500. Since its a monthly payment, divide that by 12 to get to
$1041.66. So set that to M.

P = 1041.66 ([r(1+r) n ]1[(1+r) n 1])

Now set r. Lets say that we have median debt, so Im going to set it to 6%. Now we do .06 12
to get 0.005. That is r.

P = 1041.66 ([0.005(1+0.005) n1][(1+0.005) n 1])

Finally, lets set n. To find this, we must choose how long we are going to pay this off. Lets set
this to 30 years. Now, since its monthly payments, it will have to be 30 12 to get 360.

P = 1041.66

([0.005(1+0.005) 360 ][(1+0.005) 360 1])

Now we are all set! Finish this calculation to find your maximum money you can borrow.
Note: I am not showing how to complete the calculation because it was simply all about typing it
into the calculator.
After calculating, you will find P to be $173,740. This is the maximum loan the bank will
allow you to take out.

The next step is to find a home. I found the condo below for sale in New York City.

First, I need to place a down payment, so if I pay 8%, or $7,285.68 out of pocket, then I have
$83,785.32 left to pay. Im going to request a loan for $84,000 from the bank.
Now, you can go back and solve for M to find our monthly payment.
First, reset the equation.

M =P

[r(1+r) n ]
[(1+r) n 1]

Now, of course, we can set P.

M = 84, 000

[r(1+r) n ]
[(1+r) n 1]

Now, again, we can set everything else, lets start with r.

M = 84, 000

[0.005(1+0.005) n ]
[(1+0.005) n 1]

And then enters n.

0.005(1+0.005) 360 ]
[
M = 84, 000 (1+0.005) 360 1
[
]
After solving, we now find that M = 503.62
When taking out a $84,000 loan from the bank, we will take 30 years to pay off the debt if we
pay $503.62 at a 6% compound interest.
To rebuttal, Im a botanist making $50,000 a year, and I want to buy a condo in New
York City for $91,071. I place a down payment of 8%, and then I have $83,785.32 left to pay.
Now I take an $84,000 loan out of the bank, and pay it back over 30 years at 6% interest. Now, I
have to pay $503.62 a month to pay it back on time, and enjoy my condo.
Below is a screenshot from a mortgage calculator, showing that my math is correct.

Now, what would happen if I had 10, or maybe a 20 year mortgage? Lets find out:
If I were to have a 10 year mortgage, then the equation to find P would be set up like this:

P = 1041.66

([0.005(1+0.005) ][(1+0.005) 120 1])

120

The only thing that changed is the exponent of 360 changed to 120. This happened because now
we have 10 12 instead of 30 12.
Now, when calculated, the maximum loan I can take out of the bank is $93,825.91. This is a lot
less because now that I have less time, I have to pay a lot more per month.
Now for a new value for P, lets continue to find out monthly payment.

0.005(1+0.005) 120 ]
[
M = 84, 000 (1+0.005) 120 1
[
]
After calculating for a new monthly payment on a 10 year mortgage, we find that M = 932.57.
Now we know that with a 10 year mortgage, we will have to pay $932.57 a month to pay it off in
time.

Now lets calculate for a 20 year mortgage.

P = 1041.66

([0.005(1+0.005) 240 ][(1+0.005) 240 1])

This one comes out to $145,395.71! So lets continue with this number for P.

0.005(1+0.005) 240 ]
[
M = 84, 000 (1+0.005) 240 1
[
]

Now we find that M = 601.80. This now means that if we go with a 20 year mortgage, then we
will have to pay $601.80 to pay it off in time.