Using the internet, research and find a house listing that you would not mind living in. Any house will work, but it must be selling for more than $10,000.

MM255 Business Math and Statistical Measures

Unit 8: Instructor Graded Assignment

Mortgages

In this and future Instructor Graded Assignments you will be asked to use the answers you found in the Unit 1 Assignment.

Note: For these questions you need to cite a reliable source for information, which means you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers. If you do use those sites the instructor may award 0 points for your response.

The Assignment problems must have the work shown at all times. The steps for solving the problems must be explained. Failure to do so could result in your submission being given a 0. If you have any questions about how much work to show, please contact your instructor.

Assignments must be submitted as a Microsoft Word® document and uploaded to the Dropbox for Unit 8. Please type all answers directly in this Assignment below the question it applies to.

All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.

Note: All interest rates are to be assumed to be yearly interest rates.

For this assignment you will need the prime interest rate, as posted in the Wall Street Journal®.

Use the internet to search for the current prime interest rate.

· List the current prime interest rate:_______________

Question 1

(15 points)

1. Using the internet, research and find a house listing that you would not mind living in. Any house will work, but it must be selling for more than $10,000.

a) Post a link to your house listing. You can also cut and paste a file of your listing.

b) You decide to buy this house. Assuming the bank can loan you a 30-year mortgage at the yearly interest rate of Current Prime Rate + 3%, how much are your monthly payments (show all calcuations?)

c) If you were to borrow the money instead for 15 years (at the same interest rate as in part b), how much are your mothly payments?

Question 2

(5 points)

2. Using the house listing you found in Question 2, as well as your calculated monthly payments in Question 2, how much do you pay in interest over the life of the 30-year loan?

Question 3

(10 points)

3. You find a great deal for your house! The bank agrees to give you a 5 year loan where you only pay $100 a month, and at 0% interest. What can go wrong? However, when 5 years pass you realize you agreed to a balloon mortgage, and all the rest of that loan is due right now. How much do you need to pay for your final (60th) payment? Explain how you got your answer and your reasoning behind it.

Essay

(15 points)

4. Mortgages come in many different types. There are fixed rate mortgages, ARM mortgages, and balloon mortgages to name a few.

Research fixed rate, ARM mortgages and balloon mortgages, then write an essay comparing them. What are some of the advantages and disadvantages of each? When might you find one type of mortgage loan beneficial over the other two?

Fixed rate mortgages are the most popular in todays time. They are well liked because the fixed rate remains the same the entire lifetime. This is the way to go, so you can get use to paying one particular payment minus all the other changes is a very big advantage to all. This will allow families to budget a lot better because of this set payment. The disadvantage of this type of mortgage is that you have to have excellent credit to be able to qualify. Lenders are quicker to work with individuals with great credit. Another disadvantage of this mortgage is that if the interest rate drops, the borrower may end up paying more than others who are locked in at a lower rate. The advantage of ARM mortgages is they reflect short-term interest rates which are lower than long-term rates on fixed mortgages. The ARM will have a lower initial rate, allowing a home buyer to purchase a more expensive home with a lower payment. ARM mortgages are very flexible and can change once a year depending on the current rate. When rates are low, than can simply adjust in an blink of an eye, which is bad for those who are on a budget. Baloon mortgages are very similar to a fixed rate mortgage. The monthly payments are lower because the big amount that’s paid at the end of the loan which brings an advantage also. Another advantage is the borrower who have intentions of selling thir home before the due date of the baloon payment. Ballon mortgages come with a very strong risk for all that take part in this mortgage. The disadvantage is they may not pay much down on the initial principal, but they are still faced with a financial obligation at the end of the loans life. If they fail to pay off the loan in one lump sum, they will be forced to refinance which could be very unaffordable. I find that fixed rate mortgage is a lot safer out of them all. The same payment for life will allow families to budget and get through life a lot easier. The risk of your loan being adjusted just sounds to dangerous. Fixed rate is more beneficial with tons of stress being declined at the same time.

http://www.mortgagecalculator.org/helpful-advice/types-of-mortgages.php

http://www.usa.gov/topics/family/homeowners/buyingselling/mortgages/types.shtml

Requirements for essay

· Write your essay in this document – do not save it in a separate file.

· You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure.

· This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources

· Your answer must be between ¾-1 page in length.

· You must cite and reference at least one source (book, website, periodical) using APA format.

· Do not use unreliable sources such as Wikipedia, and Yahoo! Answers.

You may submit your Assignments to the Math Center for review. Tutors will not grade or correct the Assignment, but they will provide guidance for improvement. Tutors will not, however, help you find web sites for the Assignment.

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