Financing a home Math 1050 Group 3 Presentation

How Much Can You Afford?

Interest Rates 15 vs. 30 Year

30 Year Mortgage Cost

15 Year Mortgage Cost

Payment Comparison 15 vs. 30 Year

Conclusions Ruth Wells  A 15 year will be paid off faster costing the homeowner less interest over the life of the loan.  The interest rate on a 15 year loan is lower than the interest rate for a 30 year loan.  The monthly payment for a 15 year mortgage is higher that the monthly payment for a 30 year mortgage.  A 30 year loan will take longer to pay off which will cost more interest over the life of the loan.  With each loan the amount of interest and the time to pay off the loan can be reduced by paying extra to the loan each month.  Individuals should take the time to consider the monthly or yearly cost of maintenance, property taxes, and homeowners insurance for a home before purchasing a home.

Insights Ruth Wells  Comparison of a 15 and 30 year mortgage can help individuals make financing decisions that would fit within their income and budget.  I compared the amount of interest paid on a 30 year and 15 year mortgage and using the information from my own projected loans I would save approximately 62.78% in interest by financing for 15 years.  Comparatively if I financed for 30 years but paid the monthly payment of the 15 year loan I could pay off my loan in 16 years and save approximately 50% in interest charges.  Paying the extra each month on the 30 year loan would still cost more in interest than the 15 year loan but would give an individual the financial freedom of a lower required payment.  Homeownership is an investment and should only be considered when an individual can remain in a property for 5 years or more.

Conclusions and Insights Sven Smith  With a 15 year mortgage you end up owning more of your home faster, making the equity accessible for use should it be needed.  15 year loans carry a higher monthly payment, but end up paying substantially less interest over the term of the loan. The amount of interest paid on a 30 year loan is nearly three times as much as on a 15 year loan.  Paying an extra $100 a month paid off the loan almost 2 years in advance and saved $3,  Renting a home is a valid option that carries less responsibility. However, with a rental, your money is paying for a service. Your money doesn’t have the chance to earn money, as it can when it is invested in a home that you own.  Budgeting carefully and trying to accounting for life’s “what if’s” is essential. Many considerations should be made before committing to buying a home.

Conclusions Carlye Montague  A 15 year mortgage provides you with a lower interest rate, as well as a faster way to pay off your loan, but also raises your monthly payment quite a bit. I would probably only suggest doing this if you are buying way under your price cap and can afford the higher payments. It will definitely save you on interest over the life of your loan.  A 30 year mortgage still offers a very great interest rate but provides you with a longer period of time to pay off the loan, therefore lowering your actual monthly payment. I think this is a great choice for most people because it gives you the lower payment. You could always choose to pay more monthly, which would cut down your principal, but it wouldn't be a "must" like it would be if you chose to do a 15 year loan. Choosing this longer option does up the amount you will end up paying in interest over the life of your loan.  Before deciding which type of loan you want for your home, I think you should consider not only what you can afford now, but look into the future, as best as possible, and see what type of payment you will be able to afford in the future. Also don't forget to consider taxes, utilities, furnishings for the home and anything else that may be tied in with the monthly expenses of owning a home.

Insights Carlye Montague  Knowing the information I know now, I would encourage every person that is considering buying a home to research the pros and cons for their particular situation on the 15 vs 30 year mortgages. There are benefits of both, but it would need to be decided what would fit best for each unique situation.  Understanding just how much interest accumulates over the life of your loan is important. In my calculations, I would pay almost $55K more in interest by choosing to purchase a home on the 30 year mortgage plan. Knowing this may encourage to buy a house at a lower cost, allowing you to afford to choose the 15 year mortgage plan.  A 30 year mortgage seems to be the most popular lately, and I think it's a great choice because it allows you to commit to a lower payment but also allows you the opportunity to pay more monthly, like is required in a 15 year loan, but isn't a must. Some months you can pay more and some months you can just pay your minimum!  Buying a house is a huge deal and shouldn't be taken lightly. It's a very long term commitment and the future should be very carefully considered when deciding on purchasing a house. Renting is a great option for those who are in between and not sure where they would like to settle down. Although you usually pay a bit more to rent, it's better than getting into a 15 or 30 year mortgage and not being able to afford the payments in the long run. House buying is so fun but is also a serious commitment and should not be taken lightly!

Conclusions and Insights Jill Walker  There are so many things that need to be taken into account when reviewing the option of home ownership. I would have to say that while a 15 year loan is ideal as the upsides include paying off the loan sooner and paying less interest over the life of the loan. The downside of a 15 year loan is that it is a higher payment, and if not budgeted correctly the homeowner faces a struggle to make the payments.  Unexpected things often happen as we’ve seen in the past 6 or so years. A member of the household loses a job, costly medical bills come up. The purchase of a home will likely be the most expensive decision I make. There are quite a few things that have affected my view on home buying. One would be seeing my parents divorce when I was young and my mom’s concern about paying the mortgage on her single income. Something that will hopefully have an affect on every future home buyer is seeing the crash of the housing market. The biggest thing to take away from it would definitely be the need to self educate. A lot of people were sold on the largest purchase of their life with no information that could have potentially saved them from foreclosure.  A lot of this assignment was helped by online calculators. I’m glad that these resources are available. The amortization schedule it was what I find to be the most beneficial, understanding the math behind it is something that I can see benefitting my future home ownership.

 When considering home-buying options, it is important to know what your situation is like. For example, someone with a less steady pay-check and a lower gross income may want to consider a 30 year loan, while someone for whom steady cash-flow is not an issue may want to consider a 15 year loan. Each of the loans has it’s pros and cons and it is important that you determine what is important to your situation before deciding on a financing option.  Because of the economy today, relying solely on the basic calculations for a home price based on your income could get you in a deep hole really quick. You are better off looking for a lower price home that you can really afford than a home price that could blow up in your face.  Renting may be a good option if you are currently looking for a home, or if you will be living in an area temporarily. However, as a long-term option, it is not an economically sound idea. Conclusions and Insights Benjamin Winters

Contributors Elisa Marcial – Data Information Carlye Montague – Conclusions and Insights Sven Smith – Graph Creator/ Conclusions and Insights Jill Walker – Conclusions and Insights Ruth Wells – Conclusions and Insights Benjamin Winters – Discussion Coordinator/ Conclusions and Insights