Bret whissel net amortization

Math 1050 Mortgage Project

Name______________________________ Due date: ___________

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 $201,000. 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__________________

Part I: 30 year Mortgage 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. [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 30 year loan use an annual interest rate of 4.975%.

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 to develop an

Show work here

( )

( ) 1 2

12

12 1 1

r

Y r

P PM T

− =

− +

amortization schedule. We can use a free amortization spreadsheet on the web. The web address is: http://www.bretwhissel.net/amortization/amortize.html. 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,