Math 1050 Group 4 SLCC Ashley Tignor Katherine

Math 1050 Group 4 SLCC Ashley Tignor Katherine Dixon Ryan Currier

Results

The interest rates affect on interest charged and total amount paid Our group found that the lower the interest rates then the lower the total amount paid. Example: Ashley found that the interest rate with Mountain America Credit Union on a 30 year loan was 3. 375%. If we use this interest rate on a 1 $150, 000 loan, the total cost would be $238. 731. 95 with $88, 731. 95 of that being interest expense. Katherine found that the interest rate with Wells Fargo on a 30 year loan 1 was 3. 625%. If we use this interest rate on a $150, 000 loan, the total cost would be $246, 267. 70 with $96, 267. 70 of that being interest expense. Even a small difference in the interest rate can make a large difference in the total amount paid. - In our example the interest rates had a 0. 25% difference which resulted in a $7, 535. 75 difference in total cost. 1 - www. amortization-calc. com

The length of the loans affect on the total amount paid Our group has found that the shorter the loan, the less the total cost would be. Example: For Ryan’s project he found a home costing $224, 900 and an interest rate of 3. 81% with Cyrus Credit Union. For the life of 3 o year loan he found that would be paying $137, 536 in interest with a total cost of $362, 436. For a the same home cost with a 15 year loan and an interest rate of 3. 05% he would be paying $50, 072 in interest with a total home cost of $276, 972. The difference in the total cost between the two loans is $85, 464. This example helps demonstrate how a 15 year loan can save thousands of dollars in interest over the life of the loan compared to a 30 year loan.

The length of loan’s affect on the interest charged There is a higher interest rate charged on a 30 year loan compared to a 15 year loan because the longer the loan, the greater the risk to the bank for getting repaid. As a result of the lenders greater risk, they charge a higher interest rate. A 15 year loan has a much shorter risk time which benefits the lender. The lender encourages you to pick this option by offering lower interest rates. The lower total cost benefits you as the borrower and the lower risk benefits the bank as the lender.

The effect of making additional monthly payments • • • Paying an additional $100 a month on a 15 year loan reduces the loan payoff time to 13. 42 years. Paying an additional $100 a month on a 30 year loan reduces the loan payoff time to 23 years and 11 months. The additional monthly payment reduces the principal amount which then reduces the amount of interest charged on the principal. By making an additional monthly payment of $100 you would save thousands of dollars in interest.

Renting VS Buying Vs. There are both pros and cons to renting and buying homes. It can be as simple as a matter of preference on whether to do one or the other. After doing some research on home buying, our group came up with the following conclusions on the advantages and disadvantages of renting or buying a home and the length of the mortgage.

Pros and Cons of 15 year mortgage Cons Pros �Less interest paid • More expensive �Shorter loan • More difficult to keep up if life throws you a curve ball financially

Pros and Cons of a 30 year mortgage Pros �More affordable �Can increase payments at your own discretion Cons • Loan is for a long amount of time • More interest is paid overall

Renting Pros � Maintenance is done by the landlord � Not locked into a mortgage � Often less expensive � More mobility � No property taxes 4/22/13 Cons • No equity being built • Landlord can raise rent significantly when lease is up • Restrictions to what you can do with the home i. e. personalization and pets

Buying Pros Cons � Gaining equity • � Interest rates are currently low Maintenance is the responsibility of the owner. • � Potentially owning the home one day Locked into 30 or 15 year mortgage • Other fees such as homeowners insurance, property taxes, etc. � Permanent place to reside � Tax deduction on the interest of your home 4/22/13 • Pay interest

Insight and Ideas Gained Ashley made the point that she could save a lot of money in the long run by doing a 15 year loan rather than a 30 year loan

Insight and Ideas Gained Katherine would rather have a 30 year loan with lower payments to keep stress levels lower with the option to pay more. Life can change quickly and a cheaper mortgage would give you more options.

Insight and Ideas Gained Ryan likes the idea of puchasing a less expensive house and paying it off as quickly as possible with extra money each month. Doing this frees up income for future needs.

Conclusion �Overall this was a very useful project that can correlate what we learned in class into our own lives. Math doesn’t always deem itself applicable to our life. So when we can use the tools from class and apply them to a situation all of us will go through at some point or another it gives you more insight on the helpfulness of it all. Ultimately, making us more prepared for this situation and/ or more knowledgeable for the future.

Credits and Contributions �Ashley contributed and made the slides discussing interest rates and the results. �Ryan contributed by making slides on the insights gained. �Katherine contributed by making slides on the pros and cons of renting vs buying & pros and cons of mortgages. �All three of us had good discussions, insights and good group effort toward this project.