Mortgage Problem Instructions
For this assignment, you may work with other students. This assignment is due on
Wednesday, April 18 in class. This assignment is to be single spaced, completed in
Microsoft Word. In the Word document, please only include the problem number and
answer and do not show work or rewrite questions. For example, your Word document
for the first three questions should look as follows:
1. $XX
2. XX%
3. $XX
This assignment requires that you find mortgage rates from Bloomberg.com. A picture
of the site is shown below. Remember, that you will need current rates. For example, the
day this site was visited, the current 15-year rates were 5.59% and the current 30-year
rates were 5.89%
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Mortgage Problem
After college graduation, you decide to purchase a home. You find a house you like on
www.realtor.com (this is a website where you can find homes for sale by zip code) that
costs $150,000 and you place a 10% down payment on the home. To finance the
purchase of the house, you will need to take out a mortgage. Since you are an informed
buyer, you visit the website http://www.bloomberg.com/markets/rates/ to obtain the
nominal market interest rates on mortgages. Remember to assume monthly payments
and monthly compounding. Please answer the following questions regarding the
purchase of your new home. For questions 1-14, assume that you take out a 30-year
mortgage. For questions 15-28, assume that you take out a 15-year mortgage. In
addition, for both scenarios, assume private mortgage insurance of 0.7% per year of the
home’s value. Also, assume property tax of 0.7% of the home’s value as well as home
owner’s insurance of 1% of the home’s value. Finally, assume that utilities will be $150
per month.
Assume a 30 year mortgage for questions 1-14
1.
How much of the home purchase price ($150,000) will you have to finance?
$_______________
2.
Assuming that the Bloomberg site is correct, what will the nominal interest rate be
on your mortgage? State the nominal rate, compounding period, and number of
compounding periods per year that you found on the Bloomberg site.
Rate = _______________%
3.
What will be the amount of your monthly payments if you take out a 30-year
mortgage at prevailing interest rates (the rate you found in question #2)?
$_______________
4.
When you make your first payment, how much of the payment will go towards
interest expense if the mortgage is an ordinary annuity?
$_______________
5.
When you make your first payment, how much of the payment will go towards
the principle if the mortgage is an annuity due?
$_______________
6.
What is the effective annual interest rate on your mortgage?
_______________%
7.
What is the total amount of interest expense that you will have made over the life
of your mortgage?
$_______________
8.
How much per month will you have to pay for private mortgage insurance?
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$_______________
9.
How much per month will you have to pay for property tax?
$_______________
10.
How much per month will you have to pay for home owner’s insurance?
$_______________
11.
How much per month will you have to pay for utilities?
$_______________
12.
In addition to your mortgage payments, how much extra per month will you have
to spend after considering the expenses from questions 8-12?
$_______________
13.
How much will you have to pay per month if you purchase the home after
considering the mortgage payments and other expenses?
$_______________
14.
How much interest expense would you save over the life of the mortgage if you
make a 15% down payment instead of a 10% down payment?
$_______________
Assume a 15 year mortgage for questions 15-28
15.
Assuming that the Bloomberg site is correct, what will the nominal interest rate be
on your mortgage? State the nominal rate, compounding period, and number of
compounding periods per year that you found on the Bloomberg site.
Rate = _______________%
16.
What will be the amount of your monthly payments if you take out a 15-year
mortgage at prevailing interest rates (the rate you found in question #15)?
$_______________
17.
How much per month will you have to pay for private mortgage insurance?
$_______________
18.
How much per month will you have to pay for property tax?
$_______________
19.
How much per month will you have to pay for home owner’s insurance?
$_______________
20.
How much per month will you have to pay for utilities?
$_______________
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21.
In addition to your mortgage payments, how much extra per month will you have
to spend after considering the expenses from questions 17-20?
$_______________
22.
How much will you have to pay per month if you purchase the home after
considering the mortgage payments and other expenses?
$_______________
23.
When you make your first payment, how much of the payment will go towards
interest expense if the mortgage is an ordinary annuity?
$_______________
24.
When you make your first payment, how much of the payment will go towards
the principle if the mortgage is an annuity due?
$_______________
25.
What is the effective annual interest rate on your mortgage?
_______________%
26.
What is the total amount of interest expense that you will have made over the life
of your mortgage?
$_______________
27.
How much interest expense would you save over the life of the mortgage if you
make a 15% down payment instead of a 10% down payment?
$_______________
28.
How much interest expense would you save if you made a 10% down payment,
but took out a 15-year mortgage instead of a 30-year mortgage?
$_______________
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