This project consists of determining information about mortgages and savings plans as covered
in chapter 5. Read through the steps below and complete the required work. Write up
everything you have done for the project and post the rough draft of your write-up to the
Critical Thinking Project 2 Discussion Board. Then, give pointers, tips, or comments on at least
three other students’ critical thinking projects. Do not give comments such as, “I like it,” or
“Good job” for credit. Also, do not give the same comments or advice that other students have
already given, or the same advice you have given to another student. When you give students
feedback, you should take your time, think about the project that the student has completed,
and give thoughtful, timely, and kind feedback. Finally, use the feedback you have received
from fellow students to complete the final draft of your Critical Thinking Project to be posted to
the Critical Thinking Project 2 Assignment by the final due date.
- Determine how much house you could buy. Decide how much money you could spend
on a house payment each month. Don’t forget to estimate about $300 more than the
base house payment (principal and interest payment) for property taxes, homeowner’s
insurance, and possible HOA fees (Homeowner’s Association). For example, if you think
you could afford about $1800 per month, then you should subtract off $300 per month
to find the amount that is just for the principal and interest payment. Thus, you really
could afford $1500 for the principal and interest payment in order to have enough
money for the other items. Now, using the principal and interest payment you think you
could afford calculate the amount of the house that you could afford to buy with that
principal and interest payment. This calculation will use a formula from chapter 5. Show
your work with the formula and calculate with a calculator or Desmos.
Note: In many places property taxes, homeowner’s insurance, and HOA fees could cost far more than
$300 per month.
Note: You may make up an amount of money you could afford each month if you would like. You do not
have to use your actual budget for this project. - From the houses that you collected data on for Critical Thinking Project 1, choose a
house that you might like to buy. What house is it and what is the sale price of the
house? This will now be referred to as ‘your home’ for the remainder of the project.
Based on your calculations from part 1, could you afford to buy this house? For the
remainder of the project it doesn’t really matter if you could afford the house or not. - There are many types of mortgages out there. Some require 0% down payment such as
a VA or FHA loan, while some require up to 20% down payment. Choose two
percentages from the following percentages: 5%, 7%, 10%, 15%, or 20%. What are the
two percentages of down payment that you chose? Now, calculate the down payments
for the two percentages on ‘your home.’ How much are the down payments from the
two different percentages? What would you still owe on ‘your home’ if you paid either
of these down payments? - Since down payments are pretty expensive, how much should you save each month in
an investment account so you could save up to either of your needed down payments in
five years? Assume 6% annual return on your investment. This calculation will use a
formula from chapter 5. Show your work with the formula and calculate with a
calculator or Desmos. - Since most of us cannot afford to purchase a house outright for cash we will need to pay
for the remainder of the house with a mortgage. Again, there are many types of
mortgages for different terms (length of the loan) and different interest rates (APR). In
this step you will find an APR on the market now. To find the latest national average APR
for 30-year and 15-year mortgages go to
https://www.nerdwallet.com/blog/mortgages/current-interest-rates/.
In order to calculate the monthly mortgage payment, you will use an online mortgage
calculator. There are many mortgage calculators out there to determine estimated
monthly payments, but here is a good one to use that doesn’t ask you for any personal
information https://www.bankrate.com/calculators/mortgages/mortgage-
calculator.aspx. This calculator gives you an estimated monthly payment including taxes,
homeowner’s insurance, and HOA fees, but what you are looking for is the principal and
interest payment only. This is the base monthly payment. What are the monthly
payments for the remaining balance on ‘your home’ for the two different down
payments, using the APR you found on the website, and using a 30-year loan term?
Note: Do not use one of the sites that does ask you for any personal information for this project. - The next step is to compare the monthly payments from part 5 to monthly payments for
a 15-year loan term. What are the monthly payments for the remaining balance on
‘your home’ for the two different down payments, using the APR you found on the
website, and using a 15-year loan term?
Note: Don’t forget that there are different interest rates for 30-year and 15-year loans. - You should have found that the monthly payment is higher for a 15-year loan term.
Does that mean that you should always go for the 30-year term so you can have a lower
monthly payment? Not necessarily. Now, you will calculate how much money you will
pay in interest during the loan term. Calculate the total amount of interest paid for one
of the 30-year loans and one of the 15-year loans that you worked with in parts 5 and 6.
One way to do this is to calculate what you would have paid overall during the entire 30
or 15 years of monthly payments, and then subtract out the principal of the loan. What
are the total amounts of interest paid for one of your 30-year loans and one of your 15-
year loans? Compare these amounts. - Knowing everything you have learned in parts 1 through 7, which of the down payments
would you choose? Which of the loan terms would you choose? Why?
Sample Solution