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Applied Math 40S May 13, 2008

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Applied Math 40S May 13, 2008

1. 1. Mortgages: Should I Buy or Rent? 3D Realty Handshake by ﬂickr user lumaxart
2. 2. http://tinyurl.com/3gplx7 http://www.forbes.com/2008/02/29/resale-value-autos-cars-forbeslife_cx_jm_0229resale_slide_2.html?partner=yahooca
3. 3. The Dirksons Additional Costs to Purchase Their Home The Dirksons live in Brandon and bought a house in Portage. They had the home appraised and paid \$125.00 to have it done. The bank required a survey, and the cost of the survay was \$300.00. the price of the home was \$135 000.00, and since their down payment of \$20 000.00 was less than 25% of the total price, they had to buy “High Ratio Mortgage Insurance” at a cost of 1.25% of the mortgage. The home insurance premium was \$475.00 but they recieved a \$150.00 rebate from the policy they had on their home in Brandon. The property taxes for the year had been paid by the previous owner, and so they owed 7 months of the total tax bill of \$2 125.00. A dry-walling bill of \$650.00 was split equally between themselves and the former owner. The Dirksons bought a used washer and dryer for \$920.00. Moving expenses were \$320.00 and legal fees that included the land transfer costs were \$965.00.
4. 4. The Dirksons Additional Costs to Purchase Their Home The total additional costs are \$5 957.08, or approximately \$6 000. If they do not have enough money set aside to cover these expenses, they might be able to add these costs into their mortgage.
5. 5. A group of rural students is planning to go to university. One of the members of the group suggests that they purchase an older home rather than rent an apartment. After a careful analysis of their finances, the group decides that their gross monthly income would be around \$3000.00. Monthly property taxes are estimated to be \$125.00. Heating bills are estimated to be \$150.00. The group can arrange a mortgage at a rate of 9%. The three members of the group are able to come up with a down payment of \$8000.00. Determine the maximum affordable purchase price that can be considered if they take out a 25-year mortgage. Total allowable monthly expenses on house 0.32(\$3000) = \$960 Heating & Taxes \$125 + \$150 = \$275 Maximum Affordable Maximum Possible Purchase Price is Monthly Mortgage PMT \$90 731.73 \$960 - \$275 = \$685
6. 6. Canadian Mortgages Most home buyers make monthly payments, but it is also possible to make payments twice a month, every two weeks, or every week. The amount of the payment is determined by the following: • the principal of the mortgage (the size of the loan) • the amortization term (the number of years you have to repay the mortgage) • the interest rate It is important to use a loan calculator that calculates Canadian mortgage payments, because for Canadian mortgages the interest is compounded every six months, and this may not be the case for mortgages in other countries. The Mortgage Centre http://www.mortgagecentre.com/index.cfm
7. 7. The Jamison's Mortgage The Jamison family has decided to buy a N= house. they will require a \$121 000.00 I%= mortgage to help pay for the house. PV= PMT= • Bank A offers them a 25 year mortgage FV= at 7.25%. Determine the size of the P/Y= monthly payment, the total amount paid for C/Y= the mortgage, and the total amount of PMT: END BEGIN interest paid when the mortgage is repaid.
8. 8. • Bank B offers them a 20 year mortgage N= at 7.25%. Determine the size of the I%= monthly payment, the total amount paid for PV= the mortgage, and the total amount of PMT= interest paid when the mortgage is repaid if FV= they repay the mortgage with monthly P/Y= payments over 20 years. C/Y= PMT: END BEGIN
9. 9. The Jamison's Mortgage • How much interest do they save by repaying the mortgage in 20 years instead of 25 years?
10. 10. The Jamison's Mortgage • Bank C offers them a 25 year mortgage at N= 7.00%. Determine the size of the monthly I%= payment, the total amount paid for the PV= mortgage, and the total amount of interest PMT= paid when the mortgage is repaid. FV= P/Y= C/Y= PMT: END BEGIN
11. 11. The Jamison's Mortgage • How much interest do they save by paying the mortgage in 25 years at 7.00% instead of in 25 years at 7.25%. (i.e. how much cheaper is Bank C than bank A?)