Home Mortgage (Ch 4: compound interest, savings and loan formulas) In this project assume that you have a regular job, that you are planning to buy a house and that you want to investigate some of the financial aspects of buying a house and obtaining a mortgage. First, determine what criteria you desire in your house and then either contact a realtor or use the internet to find out the approximate cost of such a house. Then decide how much you can afford as a down payment and what you will need to borrow.
Now, shop around for a mortgage, contacting at least two mortgage companies or banks, and find out: a) The APR for a 15-year loan, 20, 30-year loan, and for an adjustable rate mortgage; b) The total closing costs – you may want to get a truth and lending statement;
c) Determine the cost of mortgage insurance – can you afford a large enough down payment to eliminate mortgage insurance?
With the above information, choose a mortgage company and calculate the following: a) The monthly payment on each of the 15-year loan, 20-year loan and the 30-year loan. Be sure to show your calculations. Does this agree with what the lender quoted?
b) Next calculate the total cost of the 15-year loan, 20-year loan and the 30-year loan as well as how much you will pay in interest for each loan (in \$ terms and % terms).
c) If you could afford to pay an extra \$200 a month toward your principal, estimate by trial and error (or see your instructor for an easier method) how long would it take you to pay off your mortgage. How much would you save in interest over the length of the loan? Would you be better off in the long run if you invested this \$200 a month in a mutual fund? Explain.
Now investigate the adjustable rate mortgage. What will your starting monthly payments be? What is the upper limit of the APR? How fast can it move to the upper limit and what would your monthly payments be if you did have to pay the upper limit on the APR?