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March 17th, 2011, 06:47 PM   #1
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Mortgage Assignment

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 $200,000.
Down Payment: You are going to make a 10% down payment on the house. Determine the
amount of your down payment and the balance to finance.
Down Payment______________ Mortgage Amount__________________

Interest Rates: Assume that a lending institution will loan you the money you need at: 6.5% for a 15 year mortgage and at 7% for a 30 year mortgage
Monthly Payment: Calculate the monthly payment for both loans (rounding up by the nearest cent) by using the following formula:
PMT= P x (APR/n) / 1-(1+APR/n)^-ny

15-yr Monthly Payment_____________________ 30-yr Monthly Payment___________________________
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 to develop an
amortization schedule. We can use a free amortization spreadsheet on the web.
The web address is: http://mortgage-x.com/calculators/extra ... ulator.asp. Enter the amount
of the loan, i.e. the selling price minus the down payment, the interest rate, and the appropriate
number of years. Check the box to show the schedule.
Amortization Schedule monthly payment for a 30 year mortgage _____________
(Note: if this is more than 2 or 3 cents different from your calculation, check your numbers!)
Total interest paid over 30 years____________
Total amount paid _____________
Notice that the amount of the payment that goes towards the principal and the amount that goes
towards the interest are not constant. What do you observe about each of these values?
Number of first payment when more of payment goes toward principal than interest _________
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 35% 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 calculation.
Minimum monthly take home pay = ________________________.
Show work here
It is also important to note that your net or take-home pay (after taxes) is less than your gross pay
(before taxes). Assuming that your net pay is 73% of your gross 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.
Minimum gross annual salary = __________________________
Part II: Selling the House
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 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 rate of 4%.
Use the full purchase price as the principal. Show your work.
Value of home 10 years after purchase _______________________
Show work here.
Show work here.
Assuming that you can sell the house for this amount, use the following information to calculate
your gains or losses:
Selling price of your house ___________________
Original down payment ________________
Mortgage paid over the ten years _______________
The principal balance on your loan after ten years __________________
Do you gain or lose money over the 10 years? How much? Show your amounts and summarize
your results:
Part III: 15 year Mortgage
Using the same purchase price and down payment, we will investigate a 15 year mortgage.
Monthly Payment: Calculate the monthly payment for a 15 year loan (rounding up to the
nearest cent) by using the following formula. 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 Y is
the number of years to pay off the loan.] For the 15 year loan use an annual interest rate of
4.735%.
Monthly Payment for a 15 year mortgage = _____________
Show work here.
( )
( )
1 2
1 2
1 2 1 1
r
Y
r
P
PM T
? =
? +
Use the amortization spreadsheet on the web again, this time entering the interest rate and
number of payments for a 15 year loan.
Amortization Schedule monthly payment for a 15 year mortgage _____________
(Note: if this is more than 2 or 3 cents different from your calculation, check your numbers!)
Total interest paid over 15 years____________
Total amount paid_____________
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.]
Length of time to pay off loan with additional payments of $100 per month________________
Total interest paid over the life of the loan with additional $100 monthly payments___________
Total amount paid with additional $100 monthly payments_____________
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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March 17th, 2011, 07:50 PM   #2
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Re: Mortgage Assignment

Can you calculate the down payment?
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