Financial management

Question

Susanna wants to purchase a house costing $203,346. She plans to put $49,498 toward a down payment and finance the rest at 3.2% payable monthly for 30 years. If she stays with this payment schedule for the entire 30 years, how much will she actually pay for the house including down payment and interest?

Answer 1

Performing the calculations to create an actual amortization table is fairly simplistic using Microsoft Excel through difficult to demonstrate on this platform though with that in mind, we would be calculating the amortization of the mortgaged amount over its term. Each year, a certain portion goes towards principal and some towards interest (which increases as we near the end of the term).

The variables we will be plugging into an amortization equation are as follows:

purchase price = $203,346, down payment = $49,498 then the mortgaged amount = $153,848.

Interest rate = 3.2% (0.0032), payable = monthly, term = 30 years.

Given these values, I have simply plugged it into a mortgage calculator (a wide variety can be found online if you look on Google) and it came up with a monthly payment of $665.34 or total cost of $239,522.98.

Total cost including down payment is equal to the mortgage amount + $49,498 = $289,020.98.

Lastly, I will mention that because we are financial majors, this total cost figure does not account for the fact that the real dollar value of this amount will actually be lower to reflect the costs of inflation over 30 years and also, this is not the net present value, this is the final value. If we figure that inflation is an average of 2% annually and the fact that this is being paid over 30 years (so will be much lower if we discount the payments back to the present), the true real value of this home purchase is actually much less than the nominal value of $289,020.98.