### Lab on Buying a House

Original Contributor: Holly Hirst

Scenario: You are purchasing a house costing \$100,000; you put 20% down in cash and finance the rest at 7.25% payable monthly for 30 years. Build a payment schedule for this loan following the handout as a guide.

 What is the principal for this loan? What is the adjusted rate = rate divided by the number of times compounding? What is the term for this loan? What formula do you use for the first payment? What formula do you use for the interest on the first payment? What formula do you use for the principal on the first payment? What are the monthly payments on this loan? How much will you pay over the life of the loan (including the down payment)? How much of that is interest?
House Payments

# House Payments

 A1 B C D E F 2 cost= USE FORMULAS IN F3,F4,F5,F9,C10,D10,E10,F10. 3 %down= borrowed= 4 # pmts= adj rate= 5 annual rate= pmt= 6 pmts/yr= total paid 7 total interest 8 PMT # PMT AMT INT PRINC BAL 9 0 10 1 11 2 12 3

Last Updated on 9/14/98
By Sarah J. Greenwald

What do the first 3 payments look like?

Payment # Payment Interest Princial Balance
0 0 0 0
1

2

3

What are the 1,2 and 5 year payoff figures?

1 Year 2 Year 5 Year
Payoff

### EXPERIMENT I: INCREASING THE RATE

 If the rate is increased by .5%, what are the monthly payments? How much will you pay over the life of the loan now? How much of the total is interest?

What are the 1,2 and 5 year payoff figures?

1 Year 2 Year 5 Year
Payoff

### EXPERIMENT II: INCREASING THE DOWN PAYMENT

Change the interest rate back to 7.25%.

 If the down payment is increased by 5%, what are the monthly payments? How much will you pay over the life if the loan now? How much of the total is interest?

What are the 1,2 and 5 year payoff figures?

1 Year 2 Year 5 Year
Payoff

### EXPERIMENT III: PAY EXTRA EACH MONTH

Change the down payment back to 20%.

 If you can manage to pay an extra \$100.00 per month, when will you make your last payment? What are the monthly payments? How much will you pay over the life of the loan now? How much of the total is interest?

What are the 1,2 and 5 year payoff figures?

1 Year 2 Year 5 Year
Payoff