10.5 Buying a House With a Mortgage 635 the borrower is paying for a longer period of time (see Exercise 33). The longer the term of the mortgage, the more expensive the total cost of the house. Although the total cost of a house with the shorter-term mortgage is less expensive overall, it is not always possible for the buyer to obtain the shorter-term mortgage. Note that based on their current adjusted monthly income, the Martins most likely would not have qualified for a 10-year mortgage. TECHNOLOGY TIP There’s a Mortgage Loan Calculator App for That! Many of the concepts that we discuss throughout this section and throughout this entire chapter can be further explored with the use of an app on your smartphone or tablet computer. Several of these apps allow you to calculate the monthly mortgage payment based on the cost of your home, down payment, mortgage rate, and length of the mortgage. Many apps also allow you to include property taxes and homeowners’ insurance to calculate your total monthly payment. Some mortgage loan calculator apps also calculate other types of payments including car loans and credit card payments. As always, consult with your instructor before using these apps when completing work related to your course. Example 4 The Total Cost of a House The Martins of Examples 1, 2, and 3 purchased a house selling for $249,000. They made a 15% down payment of $37,350 and obtained a 30-year conventional mortgage for $211,650 at 4.0%. They also paid 2 points at closing. Their monthly principal and interest payment on their mortgage is $1010.45. Recall that points are considered prepaid interest. a) Determine the total amount, including principal, interest, down payment, and points, the Martins will pay for their house over 30 years. b) How much of the cost in part (a) is interest? c) How much of the first mortgage payment is applied to the principal? Solution a) To determine the total amount the Martins will pay for their house, we first note that on a 30-year mortgage, there will be 30 12 360 × = monthly payments. We then perform the following computations. × + + $1010.45 360 $363,762.00 37,350.00 4,233.00 $405,345.00 Monthly principal and interest payment Number of monthly payments Total principal and interest paid Down payment, from Example 1, part (a) 2 points, from Example 1, part (c) Total cost of the house Note that the result might not be the exact cost of the house because the final mortgage payment might be slightly more or less than the rest of the monthly mortgage payments. b) To determine the amount of the interest paid over 30 years, subtract the purchase price of the house from the total price of the house. $405,345.00 249,000.00 $156,345.00 − Total cost of the house Purchase price Total interest (including the 2 points) With this mortgage, the Martins will pay $156,345.00 in interest, including the 2 points. “Being good in business is the most fascinating kind of art.” Andy Warhol
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