Essay 5 Instructions

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Nov 5, 2023
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Essay5 Instructions: This assignment is due on Tuesday November 7 at 11:59 PM. Essay 5 involves a real-life scenario comparing the terms of mortgage loans. Read the file Finance posted in the Module Financial Mathematics on the Canvas page for the course paying special attention to the section on Mortgages. 1. Find an actual house listing in the Las Cruces area using a real estate locator service on the internet (e.g. Trulia or Zillow). Include a link to the listing that includes its sale price. The link is 2. Assuming that a down payment of 20% is made, determine the amount necessary to borrow to purchase this house. 3. Research two banks in the area that offer mortgage loans. Identify the banks and list the rates (APR) that they offer for fixed rate mortgage loans with 30-year duration and with 15-year duration. If they also require an origination fee, given as a percentage of the amount borrowed, list that also. Make sure that the terms of the loans from the two institutions are different. 4. As in the file Finance page 13, list the components of a mortgage loan and give them variable names, assuming that equal monthly payments are made. 5. Using the variables above, write the equation relating them that enables the determination of the equal monthly payment. 6. For each of the two banks you researched for part 1, determine the equal monthly payment for each of the four mortgages you found, i.e. for each of the two banks, find the , monthly payment for a 15 year mortgage and a 30 year mortgage at the interest rates they offer. If you can get access to a calculator and use it for that purpose, do that. If not, contact me before 10 AM on
Monday, November 6 with your data and I will help with the necessary calculations. You can contact me by email to set up a zoom conference if you would like. 7. For each of the 4 loan options, determine the total amount to be paid to the bank and how much interest will have been paid. If any of your options includes an origination fee, this is given as a percentage of the amount borrowed and is simply added on to the amount paid to the bank. For instance, if the amount borrowed is $200,000 and the origination fee is 1.5% (sometimes referred to 1.5 points) then .015x$200,000—$3,000 is added to the amount paid to the bank. 8. Write a couple of sentences explaining which option you think is best for you. Extra Credit For 1 point of extra credit, determine how much the duration of your chosen mortgage is reduced if $400 is added to the monthly payment. You can estimate this, use a calculator with logarithms, or set up the relevant equation and contact me for help. What to use for calculations (what I have calculated) 1. Zillow has 46 photos of this $285000 3 beds, 2 baths, 1506 Square Feet single family home located at 3407 Mercury Ln, Las Cruces, NM 88012 built in 1977. The sale price is $285,000 2. Downpayment of 20% is $57,000. The amount needed to borrow or purchase this house would be $280,000 - $57,000 = $228,000. Borrowed is $228,000. 3.
Wells fargo APR fixed rate mortgage loan 30 years at 7.84% or 15 year at 7.74% 180 months duration Pioneer bank APR fixed rate mortgage loan 30 year at 8.023% per year or 0.6686% per month duration of 360 months. 15 year at 7.075% per year or 0.5896% per month 180 months duration. Original fee 30 years = $3000 Pioneer bank 30 years $1673.40 monthly payment 360 monthly payments origination fee $3000. Wells fargo 30 year monthly interest rate 7.84% monthly payment $1590.62 for 360 months. 15 year monthly payment $2,196.21 for 180 months Use the formula A (1 + (r/12))^12t = P(((r/12)^12t)-1) / ((r/12)) Extra credit Where: A = $228,000 (principal amount from the initial instructions) r = 0.00653 (monthly interest rate)
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