Time Value of Money is a great tool to use in order to figure how much down you may want to put to achieve a certain payment, how many years it may take you to pay off a loan depending on how much more you pay, the list goes on and on. I found it very valuable when I purchased my own home, you are less likely to be played by a bank when you know what all the numbers mean and how to figure them. Remember that when you are taking out a loan, they are earning money through interest and so they want you to have the debt so you can keep paying them interest. When the interest total on a home is more than the principle that is not an ideal situation and is something to consider when purchasing a home. If you have used TVM before you will know that you use the following: N- number of terms I/Y-Interest per year PV-Present Value PMT- Payment FV- Future Value It is important that all values are calculated with the same time frame and so if you are trying to find yearly payments then everything is within a year, this can change if you want monthly, semiannually or bi annually. Duke was approved for a 30 year conventional loan for $250,000 at 3.65% fixed rate. He was also approved for a 15 year conventional loan for $250,000 at 3.45% fixed rate. He has $20,000 to put as a down payment. He has to pay insurance of $1400 a year and property tax of $2500 a year. Use time value of money to figure out the best options for Duke. (Be sure to show your work if you are able) To avoid PMI (at least 20% down) what amount would Duke have to put down if he wants to take out the full amount of the loan ($250,000)? If he looks at a house that is $150,000 how much would he pay per month with a 15 year loan? 30 year loan? If he looks at a house that is $150,000, would a 30 year loan or a 15 year loan be the best option? He plans to make mortgage payments of no more than $700 a month (this is including escrow). What price of house can he afford? How much more principal will he have to pay per month in order to pay off his house in 7 years if he does the following: $150,000 value home, 25% down payment, 15 year loan.