Mortgage Analysis

You are planning to purchase a condo that costs $480,000. You plan to put 20% down and borrow the remainder. Based on your credit score, you believe that you will pay 3.25% on a 30-year mortgage.

1. Use function PV to calculate the loan amount given a payment of $1550 per month. What is the most that you can borrow? (Be sure that PV is the amount you borrow, not the cost of the house.)

2. Use function PMT to calculate your mortgage payment.

3. Use function RATE to calculate the interest rate given a payment of $1550 and a loan amount of $384,000.

4. For each scenario, calculate the total interest that you will have paid once the mortgage is paid off. (There is not a function for this, enter the formula into the cell.)

5. For each scenario, calculate the total cost of the home purchase. (Down payment plus principle (loan amount) plus interest.) (You will have to add some cells for this.)

6. Assume that you plan to pay an extra $300 per month on top of your mortgage payment, calculate how long it will take you to pay off the loan given the higher payment. (Use the rate, PMT and PV from #2). Calculate how much interest you will pay in total. Compare this to the value that you calculated for #2.

Memo

1. Summarize the results of each of your calculations.

2. Discuss the interest savings associated with an extra payment of $300 per month.