Budgeting and Financial Planning Project
(House Exercise)

• Make a monthly expense worksheet for yourself. You may do this for real; or, if you do not want to divulge your personal finances, you can make some up. Just make sure they are realistic and fairly complete for an average person. In the budget, I would like you to determine your monthly expenses, clearly indicating what and how much they are and then totaling them (so you know how much you spend each month).

• Find a house you want to buy. Please make it a real one – you may use the internet, pick up a flyer that you drive by, or use the paper. I will want to see the flyer/printout/etc. that gives the details of the house.

• Next, go to a bank or online and get a real-life fixed interest rate on a 30-year mortgage. (By the way, the APR they give you is NOT the APR we use in the formulas. It’s something else. You want to find the RATE of the loan. That’s the percentage you want to use in our formulas.) Assuming you put 20% down, determine what your monthly payment is going to be and then make an amortization table for the first year of that loan.

• Now, assume that you are going to pay 110% of your payment (found above) each month. (Thus, you are making extra payments). Determine approximately how long it will take to pay off the loan this way and how much less you’ll have to pay the bank if you do this.

• Assuming that you determined that you could not afford to make the extra payments each month, determine what your monthly payment would actually be for the first year if you included your yearly property taxes (about 1.1% of what you paid for the house) and yearly homeowner’s insurance (assume that costs 0.3% of what you paid for the house) in that payment.

• Assuming that your takehome pay is 70% of your actual salary, what salary would you have to make each year in order to afford both your monthly expenses (without rent if you included that) and your mortgage payment for the normal 30-year loan. [Divide your total bills by 0.70.]

• Lastly, determine how much money you will pay for the house over the life of the 30-year loan.

You will be turning in (of course neatly done [10 pts] and with your name on it):

1. your monthly expenses worksheet

2. something that describes your house (a flyer would work)

3. a sheet that shows:

1. the payment for the 30-year mortgage. Be sure you figure it based on putting 20% down!

2. an amortization table of the first year of the basic 30-year mortgage found above.

3. how long it would take you to pay off your loan if you paid 110% of the payment you found for the basic 30-year mortgage. [Consider looking at websites like: http://www.jeacle.ie/mortgage/.]

4. how much less you pay by making the extra payments

e) your monthly payment for the basic 30-year mortgage if it included property taxes and homeowner’s insurance.

f) the yearly salary you need to make to afford this house.

g) the full amount of money you will pay for the house over the 30 years.