Jason and Michelle are discussing the pros and cons of buying a home versus renting in their new location. They found a small rental home listed for $850 per month but are also considering a comparable home to purchase for $145,000.
a) Calculate their mortgage payment. Assume the Howards will get a 30-year fixed rate mortgage at 5.45% and can afford to make a down payment of 5% of the sale price. Closing costs would be paid for prior to the loan so do NOT include them.
b) What would their balance be after 15 years have passed assuming they paid no extra payments on their debt?
c) What would be their payment if they were to instead finance the mortgage over 20 years?
d) How much money in interest could this save them over those 20 years as opposed to the original 30-year mortgage?
e) What would be the Howard's tax break (actual dollars saved in income taxes) for their first year of their 30-year fixed mortgage, knowing that they are in the 15% tax bracket and that their home mortgage interest is definitely tax deductible.
f) Describe in a brief sentence or two some of the other considerations the Howards should discuss before choosing to buy or rent at the present time.
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a) Calculate their mortgage payment. Assume the Howards will get a 30-year fixed rate mortgage at 5.45% and can afford to make a down payment of 5% of the sale price. Closing costs would be paid for prior to the loan so do NOT include them.
b) What would their balance be after 15 years have passed assuming they paid no extra payments on their debt?
c) What would be their payment if they were to instead finance the mortgage over 20 years?
d) How much money in interest could this save them over those 20 years as opposed to the original 30-year mortgage?
e) What would be the Howard's tax break (actual dollars saved in income taxes) for their first year of their 30-year fixed mortgage, knowing that they are in the 15% tax bracket and that their home mortgage interest is definitely tax deductible.
f) Describe in a brief sentence or two some of the other considerations the Howards should discuss before choosing to buy or rent at the present time.
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I can help you with everything except e and f (I'm not familiar with tax laws or what other considerations the Howards can choose. I expect that this is something that is being covered in your class).
However, I can help you calculate mortgage payments, loan amounts, and all that jazz.
First, let's the calculate the mortgage payment. They're going to get a loan for 95 percent of 145,000 dollars at a 5.45% rate. They're going to get this loan over 30 years (360 payments). Now, to calculate the mortgage payment from this information, we're going to need to know 2 things:
1) How compound interest works
2) How geometric series work
I don't know how familiar you are with either of those things, so I'll give you a pretty quick rundown
However, I can help you calculate mortgage payments, loan amounts, and all that jazz.
First, let's the calculate the mortgage payment. They're going to get a loan for 95 percent of 145,000 dollars at a 5.45% rate. They're going to get this loan over 30 years (360 payments). Now, to calculate the mortgage payment from this information, we're going to need to know 2 things:
1) How compound interest works
2) How geometric series work
I don't know how familiar you are with either of those things, so I'll give you a pretty quick rundown
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