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Housing Market State College, PA

Average home price is $135,000 Nice Starter Home Good Community James Franklin comes over for the kids birthday parties Can see Beaver Stadium from porch . Housing Market State College, PA. Local PNC branch got us approved and gave us candy! 3 year term 6.1% compounded monthly

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Housing Market State College, PA

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  1. Average home price is $135,000 Nice Starter Home Good Community James Franklin comes over for the kids birthday parties Can see Beaver Stadium from porch Housing Market State College, PA

  2. Local PNC branch got us approved and gave us candy! 3 year term 6.1% compounded monthly $135,000 beginning balance Mortgage rate and terms

  3. Objectives • Reduce total interest, hence the short term • Get payment below $3,500 a month • Find ideal down payment that reduces interest, fits comfortable payment range, but doesn’t break the bank.

  4. Mathematical Model The average cost of a new home in State College, PA is 135,000. With our decent credit score PNC Bank would approve us for a 3-year mortgage at 6.1% compounded monthly. However in an attempt to reduce total interest paid we will calculate assuming; no money down, $10,000 down and, $25,000 down.   We will construct a spread sheet in excel which will show remaining balance per year, total interest paid for each scenario assuming all payments made on time, and payment. Then to find balance per year will we change n accordingly in our excel model.

  5. Calculation • Payment and balance are found from the present value equation; • PV=PMT( • Where PV is present value, PMT is payment, i is rate, and n is number of periods. • N=36, i=0.061, starting PV=135,000 • Interest is found using; Interest paid = (i/12)balance. • For the first payment when balance is the full 135,000 • interest paid on the first payment= (0.061/12)135,000 = $686.25.

  6. Zero Down • Payment = $4,113.08 • Total interest paid over course of the loan assuming all payments made on time is $13,070.92 • Both interest paid and monthly payment are higher than we would like.

  7. $10,000 Down • Payment = $3,808.41 • Total Interest = $12,102.71 • Payment still a little high • Putting $10,000 down saves us nearly $1000 dollars over the course of the 3 year mortgage.

  8. $25,000 down • Payment = $3,351.40 • Interest $10,650.38 • We say nearly an additional $1500 by upping money down from $10,000 to $25,000 and payment is below the desired $3,500

  9. Conclusion • We are going to put the full $25,000 down • This saves us $2,420.54 dollars in interest compared zero down • We wanted our payments below $3,500 and they are $3,351.40 • Most interest is paid in the beginning, this is obvious because interest is a function of balance and balance is highest in the beginning. So by putting money down total interest is greatly reduced. In our case we recover nearly 10% of our payment in interest savings.

  10. Work Cited Page Barnett, R. A., Ziegler, M. R., and Byleen, K. E. 2011) Finite Mathematics for Business, Economics, Life Sciences, and Social Sciences (12th ed.) Retrieved from the University of Phoenix eBook Collection database. Dratch, D. 6 must –do before buying a home. Retrieved from http://bankrate.com/finance/mortgages/6- must-d0s-before-buying-a-home-3.aspx www.oxforddictionaries.com/definition/english/formula

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