Topic: Choose Your Mortgage
Type of paper: Essay
Format: APA
Number of pages: 2
Source needed: 2
Instructions
Use what you have learned in this module to choose a mortgage for yourself. You may choose a house for sale online as a hypothetical purchase. Using the selling price of the home, the property taxes, and an understanding of your (real or hypothetical) finances, make an informed decision based on what you have learned to choose a type of financing. Give your reasons for choosing the mortgage type. Figure out your down payment, interest rate, points or bank fees, tax and insurance reserves, and mortgage insurance. Does the property require flood insurance? Write your answers in a short paper and use a chart or table to show your figures.
Mortgage Choice
Being a prospective homebuyer, I first need to know how much house I can afford to buy to begin with. I have a monthly gross income of $8900 and have enough saved up for a 10% down payment. My allowable housing expense is calculated as follows:
- $8900 gross monthly income x 28% = $2492 total housing expense allowed
- $8900 gross monthly income x 36% = $3204 total housing and other debt expense allowed.
For the real estate I am looking at, I will use an Amortized Loan. Every installment in this amortized loan in part pays off both principal and interest. The loan is paid off gradually after some time in normal month to month or bi-regularly scheduled installments that incorporate both principal and interest over a term of years. For this property, we will take a gander at both a 15 and 30-year contract. The borrower can simply make extra installments towards the principal which will aid the borrower who then pays less interest since the loan will be paid off before the end of the contract (Allaway, Galaty, & Kyle, 2016). The reasons I choose this type of loan compared to the other ones is that is pays down the loan on a set payment over a certain amount of time.
An adjustable rate mortgage vacillates all over amid the term of the loan. Since the interest can change, the loan payment will likewise change. The contrast between the installment made and the full installment will be added to the rest of the home loan balance. This makes the measure of the loan to advance which is negative amortization. This was an element to a substantial number of the foreclosures that happened in 2007-2010 in many parts of the nation. In a balloon installment, the last installment is at any rate double the measure of some other installment. Principal is still owed toward the finish of the term and the moneylender is not lawfully committed to concede an extension of the loan and can require installment in full when the note is due. I am only 44 so a reverse mortgage would not work for me. It is aimed at those ages 62 or older. The growing equity mortgage is for those that expect their income to keep pace with the increasing loan payments to pay it off faster, which is not how my income works either (Allaway, Galaty, & Kyle, 2016). According to my chart below and due to my financial capability, it would be in my best interest to do an amortized loan for 15 years instead of the 30 years, saving me a total of $103,397.17 (Adiga, 2015).
|
Mortgage Details 30 yr.loan |
Mortgage Details 15 yr. loan |
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|
Home Value |
$170,000.00 |
Home Value |
$170,000.00 |
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|
Down Payment $ |
$17,000.00 |
Down Payment $ |
$17,000.00 |
|||||
|
Mortgage Amount |
$153,000.00 |
Mortgage Amount |
$153,000.00 |
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|
Interest Rate |
4% |
Interest Rate |
4% |
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|
PMI/year $ |
$956.25 |
PMI/year $ |
$956.25 |
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|
Amortization Period/years |
30 |
Amortization Period/years |
15 |
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|
Payment Frequency |
Monthly |
Bi weekly |
Payment Frequency |
Monthly |
Bi weekly |
|||
|
One-time expenses: closing costs, repairs, etc. |
$5,100.00 |
One-time expenses: closing costs, repairs, etc. |
$5,100.00 |
|||||
|
Property Taxes/year |
$2,125.00 |
Property Taxes/year |
$2,125.00 |
|||||
|
Home Insurance/year |
$595.00 |
Home Insurance/year |
$595.00 |
|||||
|
Monthly Principal &Interest |
$730.45 |
Monthly Principal &Interest |
$1,131.72 |
|||||
|
Property Taxes/month |
$177.08 |
Property Taxes/month |
$177.08 |
|||||
|
Homeowner’s Insurance |
$49.58 |
Homeowner’s Insurance |
$49.58 |
|||||
|
PMI (thru Feb 05, 2023) |
$79.69 |
PMI (thru Feb 05, 2023) |
$79.69 |
|||||
|
Total Monthly Payment |
$1,036.80 |
$506.62 |
Total Monthly Payment |
$1,438.07 |
$707.26 |
|||
|
Bi weekly payments would save you $17,165.47 and would be paid off in 25yrs 11 months |
Bi weekly payments would save you $5658.61 and would be paid off in 13yrs 6 months |
|||||||
|
Down Payment and one-Time expenses |
$22,100.00 |
Down Payment and one-Time expenses |
$22,100.00 |
|||||
|
Principal |
$153,000.00 |
Principal |
$153,000.00 |
|||||
|
Interest |
$109,960.34 |
Interest |
$50,710.05 |
|||||
|
Taxes, PMI, Insurance & Fees |
$87,098.44 |
Taxes, PMI, Insurance & Fees |
$42,951.56 |
|||||
|
Total of all Payments |
$372,158.78 |
Total of all Payments |
$268,761.61 |
|||||
|
Differ from 30 to 15 years |
$103,397.17 |
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References
Adiga, V. (2015). U.S. Mortgage Calculator. Retrieved from U.S. Mortgage Calculator: http://usmortgagecalculator.org/
Allaway, W. J., Galaty, F. W., & Kyle, R. C. (2016). Modern Real Estate Practice (Nineteenth ed.). La Crosse, WI: DF Institue, Inc.