The purpose of this project is to investigate the cost of a home mortgage and to determine the monthly payment.
A couple has decided to put $20,000 down toward the purchase of a new home. The remainder will be financed. It is agreed that a monthly payment of $1500 will be paid to the mortgage company each month for the next 30 years at an annual interest rate of 6%.
Find:
Problem 1. The purchase price (the selling price) of the home.
Hints: Is the mortgage agreement a type of annuity? If so, is the selling price the present value or the future value? (Fill in the yellow cells.)
Annuity? (Yes or No)
Find the present value
or the future value?
Monthly Payment =
interest rate
per month (i) =
# of payments (n) =
Value = <---Calculate the present or future value.
Plus the $20,000
down payment =
Problem 2. The total amount actually paid for the home (loan amount + interest). Hints: How much is being paid each month? For how many months?
Problem 3. The total amount of interest on the loan. Hint: Interest = the total amount actually paid for the home - the selling price
Problem 4. Construct an ammortization table that consists of the payment #, the amount of outstanding principal at the beginning of each period, the amount of interest due at the end of each period, the equal payment made at the end of each period, and the portion of the principal that is reduced by each payment. As you do this, pay attention to the amount of interest and the amount of principal that is paid each month.) At the bottom of the table, compute the total interest paid, the total amount of all payments, and the total principal paid. (Oh, and, as you copy, make sure that the Payment Amount does not change.
Problem 5. The first payment consists of $________ in interest and $_________ in principal.
Problem 6. So, approximatlely the first 200 payments consist mostly of _________?
Problem 7. As the number of payments increases, what happens to the amount of interest that is included in each month's payment?
Problem 8. As the number of payments increases, what happens to the amount of principal that is included in each month's payment?
Problem 9. Sum up the "Interest" column in the above table using the SUM function and show the result in the row underneath the table. Does it agree with your calculation in question 3?
Problem 10. Sum up the column in the above table titled, "Portion of Principal Reduced" using the SUM function and show the result in the row underneath the table. Does it agree with your calculation in question 1 (minus the down payment)?
Problem 11. Suppose the couple decides to deposit an extra $100 in principal each month. Complete the ammortization table below. At the bottom of the table, compute the total amount of interest paid and the total portion of principal paid.
Problem 12. What is the total amount of interest paid on this loan?
Problem 13. How many fewer payments were made when an extra $100 in principal was paid each month?
Problem 14. How much money was saved when an extra $100 in principal was paid each each month?