Question

The largest expense and biggest investment for many people is their home. As can be seen from the graphic to the left, the most common mortgage is one that lasts 30 years or 360 payments. Of course, this certainly benefits the bank, but does it benefit you.

The calculation for mortgage payment is more complex than the exercise we are going to do, but we want to examine the impacts of different loan periods.

Let’s take a look at what different payment periods will mean for you.

Expected Year of Graduation?    ___________

Assume two-years later, you will buy your first home. Year: ________ How old will you be? _______

Estimate your income:                   What job do you think you will be doing?          ________________________

Find your entry level salary online:                    $ ______________________     http://swz.salary.com/SalaryWizard/LayoutScripts/Swzl_NewSearch.aspx
                                                            (if undecided major use $ 50,000)

Here’s the big assumption, assume your home payment is 30% of your monthly gross income:         $ ___________
                                                                                                                 Annual income 12 x 30%

Let’s Compare the Mortgages:

Term	15 years	20 years	30 years
What year do you buy home? (#2 above)
What year will your loan be paid off? (add term)
How old will you be when paid off?
Current Average Interest Rate* *Online Averages on 10/4/16	2.875%	3.322%	3.443%
Monthly Payment (#4 above – same for all)
Calculate Home Purchase Price (PV) N = term x 12   I% = Interest Rate/12   PV= answer PMT = Monthly Payment above             FV = 0 This is how much home you can “afford” to buy
Total Loan Cost (term x 12 x monthly payment)
Amount of Interest Paid Total Loan Cost – Home Purchase Price
Your Choice: Compare your age at pay-off, the house you can afford and the total interest paid – which loan would you choose – check one.

Interesting online calculator for mortgages: https://www.chase.com/mortgage/mortgage-resources/affordability-calculator

Answer 1

Expected Year of Graduation?    2018

Assume two-years later, you will buy your first home. Year: 2020 How old will you be? 22 Years

Estimate your income: $60,000 What job do you think you will be doing? Finanacial_Analyst

(if undecided major use $ 50,000)
Here’s the big assumption, assume your home payment is 30% of your monthly gross income:									$18,000.00
Annual Income 12*30%

Term	15 years	20 years	30 years
What year do you buy home? (#2 above)	2020	2020	2020
What year will your loan be paid off? (add term)	2035	2040	2050
How old will you be when paid off?	39	44	54
Current Average Interest Rate*	2.88%	3.32%	3.44%
*Online Averages on 10/4/16
Monthly Payment (#4 above – same for all)	$5,000	$5,000	$5,000
Calculate Home Purchase Price (PV)	$144,205	$162,751	$189,593
N = term x 12   I% = Interest Rate/12  PV= answer
PMT = Monthly Payment above             FV = 0
This is how much home you can “afford” to buy
Total Loan Cost (term x 12 x monthly payment)	$207,000	$276,000	$414,000
Amount of Interest Paid	$9,480.00	$8,916.00	$       8,112
Total Loan Cost – Home Purchase Price	$62,795	$113,249	$224,407
Your Choice: Compare your age at pay-off, the house you can afford and the total interest paid – which loan would you choose – check one.
based on the above calculations and income the loan term with 15 years, i will choose as the monthly payment is $790 which is 16% of gross income with l15 years tenure