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Wednesday, May 10, 2006 

Scribe

Hi guys im your scribe today :P

Well today in the first class we did a group assignment on mortgages

Ex. Mrs. Jones, Mrs. Jones

Mrs. Jones has decided to buy a home. She requires a $65,000 mortgage. The mortgage interest rate is 7.75%, and she will repay the mortgage with monthly payments. She needs to decide whether she will select a 20- or 15-year amortization term. How much do her monthly payments increase, and how much money will she save if she chooses a 15-year term instead of a 20-year term? Would you advise Mrs. Jones to get a 15- or 20- year mortgage? Why?

Using the Tvm Solver we figure out both the 20year term and the 15year.

The 20 year mortgage

N = 240 (12*20)
I% = 7.75
PV= -65000
PMT = (Alpha Solve) = 528.7248824
FV = 0

P/Y = 12
C/Y =
2

The 15 year mortgage

N = 180 (12*15)
I% = 7.75
PV = -65000
PMT = (Alpha Solve) = 607.2865553
FV = 0
P/Y = 12
C/Y = 2

So you take the monthly payments we just solved and multiply it by the number of months in a year and then multiply it by the number of years.

(528.73*12*20) = $126895.20
(607.29*12*15) = $109312.20

So now we can figure how much interest the mortgages for the 20 and 15 year are by subtracting $65000 from each of the numbers we got.

So For the 20 year mortgage
(126,895.20-65,000)= $61,895.20
And For the 15 year mortgage (109,312.20-65,000)= $44,312.20

So I would advise Mrs. Jones to take the 15 year mortgage payment plan if she can afford to pay the monthly payments. Because If she takes the 15 year mortgage plan she will end up paying $17,583.00 less in interest. (61895.20-44312.20) = 17583.00

In the second class we just did the work we were given earlier.

And some student named Pat made a discovery about our textbooks. Canadian mortgages by law can only be compounded semi-anually. So on your TVM solver C/P always = 2 when dealing with canadian mortgages.

Well thats everything we did.

Tommorows scribe will be Shane (haha)





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