Financial Project
Financial Project
MAT104: Algebra with Applications
18 November 2012
Professor Brandon Vaughn
After purchasing a home at $151,000 five years ago with a down payment of $30,000 and 5.75% fixed rate I consider methods to pay off the loan within 20 years instead of 25 years that remain. I would look at a number of possibilities.
The first being how much it would be extra monthly in order to pay off the loan in 20 years instead. Knowing that my total payment on the home is $917.25 which includes escrow of $211.13, I would try to reamortize the loan based on a higher monthly payment. I know that I have $100.00 after bills and expenses left over. One of the easiest ways to determine if this would be enough would be to take the monthly principal and interest and add $100.00 to it which would give me a new monthly payment of $806.12 towards principal and interest at the 5.75% rate on the remaining balance of $121,000. So using the above amortization table for monthly cost per $1000 I can determine that the amount of loan remaining divided into 1000 multiplied by the entry for 20 years at 5.75% or 7.0208 is the new payment needed to pay off the loan within 20 years. This comes to the product of 121 and 7.0208 or 849.52 which is more than the amount that I have available to budget. This would determine with the current expenses I would be unable to pay the amount needed to satisfy the mortgage within 20 years unless I either receive an increase in pay or get rid of an unnecessary monthly expense. At this point, I would need to prioritize the expenses and determine if my goal for the home is more important than an expense totaling 42.40 or more to meet my new goal. Next, one might look at refinancing the mortgage to allow for a lower payment due to a reduced interest rate. Knowing that the closing cost is $2000 up front this would also need to be considered as a factor. Depending on the credit since there is clearly enough
MAT104: Algebra with Applications
18 November 2012
Professor Brandon Vaughn
After purchasing a home at $151,000 five years ago with a down payment of $30,000 and 5.75% fixed rate I consider methods to pay off the loan within 20 years instead of 25 years that remain. I would look at a number of possibilities.
The first being how much it would be extra monthly in order to pay off the loan in 20 years instead. Knowing that my total payment on the home is $917.25 which includes escrow of $211.13, I would try to reamortize the loan based on a higher monthly payment. I know that I have $100.00 after bills and expenses left over. One of the easiest ways to determine if this would be enough would be to take the monthly principal and interest and add $100.00 to it which would give me a new monthly payment of $806.12 towards principal and interest at the 5.75% rate on the remaining balance of $121,000. So using the above amortization table for monthly cost per $1000 I can determine that the amount of loan remaining divided into 1000 multiplied by the entry for 20 years at 5.75% or 7.0208 is the new payment needed to pay off the loan within 20 years. This comes to the product of 121 and 7.0208 or 849.52 which is more than the amount that I have available to budget. This would determine with the current expenses I would be unable to pay the amount needed to satisfy the mortgage within 20 years unless I either receive an increase in pay or get rid of an unnecessary monthly expense. At this point, I would need to prioritize the expenses and determine if my goal for the home is more important than an expense totaling 42.40 or more to meet my new goal. Next, one might look at refinancing the mortgage to allow for a lower payment due to a reduced interest rate. Knowing that the closing cost is $2000 up front this would also need to be considered as a factor. Depending on the credit since there is clearly enough