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[beerbelly]

"3) Bob has just purchased a house. The house sold for $402,500 but he paid a down payment of 15% of the purchase price up front. With a twenty year mortgage he plans on making weekly payments to the Mortgage Mart, who has arranged his loan with a rate of 6.5%. Suppose, in addition to his regular payments Bob plans on making balloon payments of $1400 every six months for the first two years of his term and payments of $900 every eight months for the following three years. Bob never took FIN300 and is wondering whether these additional payments will help him pay off the mortgage faster, slower or no difference. Calculate for Bob the time difference if he paid off his mortgage with the additional payments as opposed to without them."

I don't know how to start this question or which formulas to use. Everyone I know are busy studying for their midterms so they can't help. So can any of you help me out? Any tips would be appreciated.

 

[NohWun]

This is where Microsoft XL (or some other spreadsheet program) is your best friend.

Just set up one column with the current principal amount (starts with the original price minus the down payment).

Set up another column for the weekly interest amount (6.5 % divided by 52 weeks in a year times the current principle).

Set up another column with the payment amount (not specified, so you'll have to figure it out).

The current principal is updated by the current principal above minus (payment amount - interest).

Duplicate these columns down for 20 years * 52 weeks/year.

Adjust the payment amount until the last payment pays off the loan (or use a loan calculator to figure out the payment).

Now add in the additional payments and see when principle drops to zero.

 

[goodcow]

I don't understand how anybody can stand a career doing this stuff.

 

[tt_deeb]

I don't understand how anybody can stand a career doing this stuff.

Yeah I know. My dad is an accountant.

 

[NohWun]

One issue with the problem as stated is that "every 8 months" is somewhat ambiguous since payments are weekly (8 months is 34.67 weeks). Also, "every N months" is a bit ambiguous, since it doesn't indicate if payments are made at months (1, N+1, 2N+1, ...) or months (N, 2N, 3N, ...) or some other schedule.

In any case, I've downloaded & installed OpenOffice from www.openoffice.org since this computer didn't have MS Office on it. Once I did that, it took only a few minutes to set up the problem as I showed above.

It looks like the extra payments will take approximately 1 year off the loan, assuming I didn't goof up.

As far as "How can you stand it", I'd suppose the answer is (a) because it's easy, and (b) potentially big salary. I wouldn't know though, since it's not my line.

 

[Mr Gump]

Hmm, i can do this i think, but not right now im tired as shit.

An important thing to remember with finance is to create an equation of value, and by that meaning DEBT = REPAYMENTS, because eventually the total of all repayments will equal the value of the debt.