HOME SWEET HOME

Aim: What is the math involved with purchasing a home?

Journal Writing:

1) The following are famous quotes about the concept of “home.”  Pick one and write whether you agree with it or not.  The response must be at least 100 words in length. 

The ideal of happiness has always taken material form in the house, whether cottage or castle. It stands for permanence and separation from the world.    -- Simone de Beauvoir

We need not power or splendor, Wide hall or lofty dome; The good, the true, the tender, These form the wealth of home.  -- Sarah J. Hale

Home, the spot of earth supremely blest, A dearer, sweeter spot than all the rest.    -- Robert Montgomery

2) Find your own quotes on the Internet about home. 

http://geocities.com/Athens/Acropolis/2012/quote.html

(Search for quotes about homes)

Use the quote to write a paragraph or poem about your ideal home.

Learning Activities:.

Question 1
You and your spouse are considering buying a house that costs $189,000. You have $80,000 in your savings account and have been waiting to go on a $30,000 world cruise. The remaining $50,000 will be used as a down payment on the house. You've decided to finance the house with a 30-year loan.

Using the World Wide Web :

• http://easierhomeloans.com/level2/rmr.htm (Search for home loan rates)
• http://homeadvisor.msn.com/ie/ (Search for homes and loan rates)
• http://www1.countrywide.com/rates/rates.asp (Search for loans)

look up interest rates on a 30-year loan. (You must look up at least two sites or find your own.) Enter the rate (as a percentage) into cell F8. Calculate the first month's interest payment in cell C8 using the formula "= B7*$F$8/12". Replicate this formula down to cell C367 (the amounts in the replicated cells will equal zero until you complete the next step). In cell B8, you will calculate the amount of the loan still owed after one month. This amount is equal to the amount in B7, plus the amount of interest listed in cell C8, minus the constant payment amount in cell F9. The formula will be "= B7 + C8 - $F$9". Replicate this formula down to cell B367. (see attached excel work sheet completed as an example)

You are now going to use trial and error to calculate a monthly payment so that the amount owed on the loan after 30 years (shown in cell B367 and also in cell F10) is equal to $0. Start with a payment of $1000 and adjust as needed. Since you will not be able to get the amount exactly to $0, estimate the monthly payment to the nearest dollar.

Question 2
A friend has suggested that you may want to wait a few years before taking your big cruise and use the cruise money as part of the down payment on your house. He says you will only need to take out a 15 year loan and that the monthly payments should not change much at all.

Assume a down payment of $80,000 and a loan term of 15 years. Check the web for rates on a 15-year loan and enter it into cell M8. (Please use more than one site to compare rates. Write down your comparisons.) Use the technique above on the right side of the spreadsheet to calculate a monthly payment with this new information (again, to the nearest dollar).

Assuming a down payment of $80,000 and loan term of 15 years, what will your monthly payment be? Use the World Wide Web to find the interest rate on a 15-year loan, and use the same method as in Question 1 to calculate your result.

Question 3
After realizing that the monthly payments would be about the same with either choice, you tell your friend that you’re going to go on the cruise now since you plan on selling your house in ten years. Your friend says that it's still not a good idea, and says it’s "all about equity". What is your friend talking about?

Equity represents the amount of the house that you own at any given moment. It’s defined as the current price of the house minus the amount you still owe to the bank. Lets start with the first example and calculate the equity you’d have in the house after 10 years. Column “B” represents the balance of the loan, or the amount still owed to the bank. Cell B127 shows the amount owed after 10 years. Subtract this from $189,000. (Enter =189000-b127 in cell F14).

Calculate the same result for Scenario 2. (Enter =189000-I127 in cell M14). Subtract the price of a cruise ($30,000) from this amount and compare. How much extra money would you have if you waited 10 years to take your cruise?

NOTE: The above calculation neglects inflation. In the real world, the value of the house would probably increase over ten years. The price of the cruise would probably increase as well.