8'5 Cost of Home Ownership

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8.5 Cost of Home Ownership
Mortgage Long term loan, usually 30 years,
involving property as collateral.
Down Payment Percentage of sale price paid
upfront.
MortgageSale Price Down Payment
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Mortgage Options
Fixed Rate Same monthly payment for the
life of the loan because the interest
doesnt change.
Variable Rate Payments change based on the
current interest rate, there are caps inserted
for the life of the loan
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Mortgage Options
Short Term Loan Pay only the interest for the
life of the loan, then the balloon payment for
the entire loan.
FHA, Federal Mortgage Loans Loans are mortgaged
insured by government and require smaller down
payment.
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Other Terms
POINTS A one time finance charge that equals 1
of the loan amount, ie mortgage, for each point
Escrow Account The monthly payment is increased
and the extra is used to pay real estate taxes
and insurance.
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EX 1. The selling price of a home is 160,000.
The Bank requires a 15 down payment and two
points at the time of closing.
Down Payment Mortgage Amt Closing Costs
24,000
160,0000.15
136,000
160,000 24,000
2720
160,000 0.02
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Computing Monthly Payments
N I PV PMT FV P/Y C/Y
END
Number of Monthly Payments
Rate, as a percentage
Mortgage
Monthly Payment
0
12 Num. of pays per year
12 Num. of Comp per year
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Find Monthly payment for a 30 year fixed at 8
for exercise 1.
N I PV PMT FV P/Y C/Y
360 8 136,000
-997.92
0 1212
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Find Monthly payment for a 15 year fixed at 8
for exercise 1.
N I PV PMT FV P/Y C/Y
180 8 136,000
-1299.69
0 1212
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Using exercise 1, Compare the Total Cost of
Interest between the two loan options and compute
the savings.
Total Cost of Interest
Total Payments Mortgage
Yrs 12 Monthly Pay. Mortgage
10
30yrs _at_ 8
30 12 997.91 136,000
Total cost of Interest 223,247.60
15yrs _at_ 8
15 12 1299.69 136,000
Total cost of Interest 97944.20
Savings 223,247.60 97944.20
125,303.40
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EX 2. The price of a condominium is 100,000.
The bank requires a 5 down payment on a 30 year
fixed mortgage at 6.5.
Find the monthly payment and total cost of
interest.
First, find the mortgage
95,000
100,000 0.05 100,000
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Find Monthly payment for a 30 year fixed at 6.5
for exercise 2.
N I PV PMT FV P/Y C/Y
360 6.5 95,000
-600.46
0 1212
Next find the total cost of interest.
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Total Cost of Interest
Total Payments Mortgage
Yrs 12 Monthly Pay. Mortgage
30 12 600.46 95,000
121,165.60
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Determine the unpaid balance on the mortgage
after five years for exercise 2.
The information must be in the TVM solver, from
Ex 2 then go to the home-screen.
Call up the bal( command which is under APPS,
Finance, 9
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bal( is an automatic AMORTIZATION Schedule, pg443
By typing in the number of payments that have
been made it can calculate the remaining unpaid
balance on the mortgage
bal(512)
88,930.43
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After five years, the value of the condo in
exercise 2 appreciates to 125,000. What is the
maximum amount on a home equity loan?
Home Equity Loan
80 of homes value unpaid balance
.80 125,000 88,930.43
11,069.57
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Homework

• Pg 444
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