Math 1030

Name ______________________________
Buying a House

Select a house from a real estate booklet, newspaper, or website. Find something reasonable
between $100,000 and $350,000. In reality, a trained financial professional can help you
determine what is reasonable for your financial situation. Take a screen shot of the listing for
your chosen house and attach it to this project. Assume that you will pay the asking price for
your house.

The listed selling price is ____________.

Assume that you will make a down payment of 20%.

The down payment is ____________. The amount of the mortgage is ____________.

Ask at least two lending institutions for the interest rate for both a 15-year and a 30-year fixed
rate mortgage with no points or other variations on the interest rate for the loan.

Name of first lending institution: ___________________________.

Rate for 15-year mortgage: ____________. Rate for 30-year mortgage ____________.

Name of second lending institution: ___________________________.

Rate for 15-year mortgage: ____________. Rate for 30-year mortgage ____________.

Assuming that the rates are the only difference between the different lending institutions, find the
monthly payment at the better interest rate for each type of mortgage.

15-year monthly payment: ____________. 30-year monthly payment ____________.

These payments cover only the interest and the principal on the loan. They do not cover the
insurance or taxes.

To organize the information for the amortization of the loan, construct a schedule that keeps
track of: (1) the payment number and/or (2) the month and year (3) the amount of the payment,
(4) the amount of interest paid, (5) the amount of principal paid, and (6) the remaining balance.
There is a Loan Amortization schedule in CANVAS.

Its not necessary to show all of the payments in the tables below. Only fill in the payments in
the following schedules. Answer the questions after each table.
15-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
1. .
2. .
50. .
90. .
120. .
150. .
180. . $0.00. .
total ------- ---------

Use the proper word or phrase to fill in the blanks.

The total principal paid is the same as the ______________________.
The total amount paid is the number of payments times _________________________.
The total interest paid is the total amount paid minus ___________________________.

Use the proper number to fill in the blanks and cross out the improper word
in the parentheses.
Payment number _____ is the first one in which the principal paid is greater than the
interest paid.

The total amount of interest is $_____________ (more or less) than the mortgage.

The total amount of interest is _____________% (more or less) than the mortgage.

The total amount of interest is _____________% of the mortgage.

30-year mortgage

Payment Payment Payment Interest Principal Remaining

Number Date Amount ($) Paid ($) Paid ($) Balance ($)
1. .
2. .
60. .
120. .
240. .
300. .
360. . $0.00. .
total ------- ---------

Payment number _____ is the first one in which the principal paid is greater than the interest paid.
The total amount of interest is $_____________ (more or less) than the mortgage.

The total amount of interest is _____________% (more or less) than the mortgage.

The total amount of interest is _____________% of the mortgage.

Suppose you paid an additional $100 a month towards the principal

The total amount of interest paid with the $100 monthly extra payment would be
$__________.

The total amount of interest paid with the $100 monthly extra payment would be
$___________ (more or less) than the interest paid for the scheduled payments only.

The total amount of interest paid with the $100 monthly extra payment would be
___________% (more or less) than the interest paid for the scheduled payments only.

The $100 monthly extra payment would pay off the mortgage in ____ years and ____
months; thats ______ months sooner than paying only the scheduled payments.
Summary

In this project, I compared the expenses related to interest rates, loan terms, and extra
payments when calculating mortgages. It is clear from the results of the project, and logic in
general, that a lower interest rate, shorter term, and extra payments result in lower costs paid
overall. From the previously calculated numbers, a 15-year loan with a 3.125% rate ends up
costing $80,370 less than a 30-year loan with a 3.625% rate over the course of the respective
terms. This is due to factors including a lower interest rate and a higher monthly payment
resulting in more money paid for principal. For a loan of $207,200 on a 15-year term, the
monthly payment was calculated to be $1,443.37, while the monthly payment is $944.94 on a
30-year term. Though the payments are larger with the 15 year, the mortgage is paid off faster
and therefore has less time to accrue interest. Over the course of the 15-year term, an additional
$52,607 is paid for interest. This is much less compared to the $132,977 that is paid from a 30-
year term.

It is also possible to pay off the loans quicker, and pay less interest, by applying extra money
to the payment each month. Using the numbers above, including applying $100 extra each
month, a 30-year term would only take 25.25 years to pay off. Due to the extra money applied to
principal and 4.75 less years to accrue interest, $100 of extra payments would result in
$23,610.68 less paid for interest. Using the same extra payment, a 15-year term would only take
13.83 years to pay off and would result in $4,522 less being paid for interest. If one paid an extra
$550 each month on a 30-year mortgage, it would then take 15 years to pay off the loan.
However, due to the higher rate on a 30-year mortgage, this still results in more interest paid over
the 15 years opposed to an actual 15-year loan. By paying a 30-year mortgage off in 15 years,
one would pay $61,662 opposed to another that would pay $52,607 over a 15-year term with the
before mentioned 3.125% rate.

A good conclusion can be made from this project a shorter term with a lower interest rate
results in less money paid over the course of a loan. However, the monthly payments can be
significantly higher with a shorter term which takes money from other day to day expenses. This
may change ones ability to pay on a 15-year term. Another conclusion that can be made from
the calculations above is that extra payments, thought taking more money out of ones monthly
budget, result in lower money thrown away in to accrued interest. If more money can be spared
for a monthly mortgage payment, it ends up being much better in the long run.