# MM255 Business Math and Statistical Measures

 Date conversion 07.01.2017 Size 112,97 Kb.

## MM255 Business Math and Statistical Measures

Mortgages
In this and future Instructor Graded Assignments you will be asked to use the answers you found in the Unit 1 Assignment.
Note: For these questions you need to cite a reliable source for information, which means you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers. If you do use those sites the instructor may award 0 points for your response.
The Assignment problems must have the work shown at all times. The steps for solving the problems must be explained. Failure to do so could result in your submission being given a 0. If you have any questions about how much work to show, please contact your instructor.
Assignments must be submitted as a Microsoft Word® document and uploaded to the Dropbox for Unit 8. Please type all answers directly in this Assignment below the question it applies to.

All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.

Note: All interest rates are to be assumed to be yearly interest rates.
For this assignment you will need the prime interest rate, as posted in the Wall Street Journal®.

Use the internet to search for the current prime interest rate.

• List the current prime interest rate:________3.25%_______

Question 1

(15 points)

1. Using the internet, research and find a house listing that you would not mind living in. Any house will work, but it must be selling for more than \$10,000.
a) Post a link to your house listing. You can also cut and paste a .jpeg file of your listing.

http://www.zillow.com/homedetails/3117-C-St-Sacramento-CA-95816/25777967_zpid/ \$439,900

b) You decide to buy this house. Assuming the bank can loan you a 30-year mortgage at the yearly interest rate of Current Prime Rate + 3%, how much are your monthly payments (show all calcuations?) 12 * 30 = 360 payments 439900/1000= 439.90 .0625/12= .00521 439900= (.00521/1-(1+0.00521)-360

439900(.00521/ 1-(1.00521)-360 0.00521/ 1-(.15410299)

.000521/ .84589701= .00615914223

439900 * .00615914223= \$2709.41 monthly payments
c) If you were to borrow the money instead for 15 years (at the same interest rate as in part b), how much are your mothly payments? .00521/ 1-(1+.00521)-180 .00521/1-.39244241, 1-.39244241= .60755759

.00521/ .60755759 = .008575318 * 439900 = \$3772.28 monthly for 15 years

Question 2

(5 points)

2. Using the house listing you found in Question 2, as well as your calculated monthly payments in Question 2, how much do you pay in interest over the life of the 30-year loan?
2709.41 * 360 payments = 975,387.60 – 439900= 535,487.60 in interest over 30 years or \$239,110.40 over 15 years
Question 3

(10 points)

3. You find a great deal for your house! The bank agrees to give you a 5 year loan where you only pay \$100 a month, and at 0% interest. What can go wrong? However, when 5 years pass you realize you agreed to a balloon mortgage, and all the rest of that loan is due right now. How much do you need to pay for your final (60th) payment? Explain how you got your answer and your reasoning behind it

. 59 * 100 = 5900. So, 439900-5900= 434,000 is due on the 60th payment. The reason for this is their was no interest for the first 5 years and monthly payments were only \$100 a month. If you only paid that amount, you would only reduce your principal by the amount paid of \$5900. If this was the case I would have paid what the actual mortgage would be of \$2709.41 for 5 years at 0% then your principle would be reduced by \$162, 564.60 and your remaining balloon payment would be much less at, \$277,335.40.

Essay

(15 points)

4. Mortgages come in many different types. There are fixed rate mortgages, ARM mortgages, and balloon mortgages to name a few.

Research fixed rate, ARM mortgages and balloon mortgages, then write an essay comparing them. What are some of the advantages and disadvantages of each? When might you find one type of mortgage loan beneficial over the other two?

Requirements for essay

• Write your essay in this document – do not save it in a separate file.

• You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure.

• This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources

• You must cite and reference at least one source (book, website, periodical) using APA format.

• Do not use unreliable sources such as Wikipedia, and Yahoo! Answers.

You may submit your Assignments to the Math Center for review. Tutors will not grade or correct the Assignment, but they will provide guidance for improvement. Tutors will not, however, help you find web sites for the Assignment.
Be sure to submit Assignments early enough to receive feedback and make corrections before the Assignment due date (24 hour turn-around times Monday-Thursday and 48 hour turn-around times on weekends are typical).
Email Assignments to: kumc@kaplan.edu. Please put “MM255 Assignment Review” in the subject line of the message.

Fixed Rate Mortgages

This type mortgage is one that the interest rate remains the same for the life of the loan, and are by far the most popular type loans. The main advantage of this type loan is the homeowner always knows what is due each month on payments. One advantage of these type loans is when the rate reduces the owner can apply for a refinance to get a lower rate and monthly payment. A downside of these are they tend to be higher payments than others, plus you will be required to pay closing cost if you want to refinance. The Fixed rate loan is by far the least risky loan and is guaranteed for the life of the loan. If I was looking to find a home to live in for several years this would be my best option for a loan.

ARM Mortgages1

The Adjustable rate Mortgage is one that the rate can change after a specified amount of time. These type of loans can be very scary as they payments can increase dramatically very quickly. A good thing about ARM loans is you get a lower payment on a more expensive home and can usually refinance every year to keep the low interest rate, but it is not guaranteed. If you are looking to flip homes or buy them and only live in it for a year or two this loan would be best, as the payments are much lower than fixed and you don’t plan to remain there for the 30 years.

Balloon Mortgages. A balloon mortgage is mostly short term. Monthly payments are usually very low with a large pay-off at the end of the loan period. You are mainly paying for the interest on your monthly payments. These type loans are great for homeowners who are planning on selling the home prior to the end of the loan. I think that a balloon loan would be perfect also for people looking to flip homes, who don’t need the large monthly payments and are using the home as an investment property. I think these type loans would be good for people like contractors who build homes and want to sell them quickly to not have to deal with the last large payment.