Posted: September 1st, 2022

Making Money from Real Estate Investment

Making Money from Real Estate Investment
In a 750 word paper in IWG format, use an online mortgage calculator to analyze and discuss the case study described below. Your calculations should be used to complete the worksheetPreview the document provided, and then submit the worksheet along with your written answers to the questions asked in the case study.

You are welcome to use an online mortgage calculator of your choosing, but a couple of suggested websites are provided here:
www.mortgageloan.com
(Links to an external site.) and
www.bankrate.com
(Links to an external site.). Please be sure to select the “calculator” or “mortgage calculator” link. To use a mortgage calculator you should not be required to enter any of your personal information.

1.
Option 1
Mortgage Payment per Month (M) = P[r(1+r) ^n/((1+r) ^n)-1)]
250,000[4%/ 12 (1+4%/12) ^ (30*12) / ((1+4%/12) ^ (30*12)-1)] =
250000(0.04 ÷ 12(1 + 0.04 ÷ 12) (12 × 30) = 2761.2153
((1 + (0.04 ÷ 12) (12 × 30) – 1)) = 2.31345838

2761.2153/ 2.31345838= $1193.54
Mortgage PYT = $1193.54
Property Taxes= (1.25%/12(1193.54) = $1.24
Insurance= =$60
PMI= 0% =$0
TOTAL = $1254.78
Option 2
250,000[3%/ 12 ( 1+3%/12)^(15*12) / ((1+3%/12)^(15*12)-1)]=
250000(0.03 ÷ 12(1 + 0.03 ÷ 12) (12 × 15) = 979.644827917

((1 + (0.03 ÷ 12) (12 × 15) – 1)) = 0.567431724668

979.64/ 0.567431724668 = $1726.45
Mortgage PYT = $1726.45
Property Taxes= (1.25%/12(1726.45) = $1.798
Insurance= =$60
PMI= 0% =$0
TOTAL = $1788.25

2. The second option would be the most suitable loan for John and Jane. This is based on the total amount to be paid at the end of the 15 years, considering the interest rates, insurance, and property taxes that will also affect the payment rates. When considering the 30-year mortgage, John and Jane’s home buyers will end up paying a total of $451,440.00. This is a considerably big amount they will end up paying in 30 years. This figure is arrived at by calculating the monthly mortgage payment by the time each payment will be made (monthly for the rest of the 30 years).
That is 1254.78*12*30 = $451,440. The other option will see Jane and John use a combined total of $321,840.00. This figure was arrived at based on the same calculations 1788.25*12*15 = $321,840.
The homebuyers make 63,000 dollars a year and already pay a total of 500 dollars a month in student loans, car loans, and credit card debt. In a year, they will have $21,456 deducted off their income for 15 years. On the contrary, they will pay a total of $15,057.36 for double the period paying an additional $129,600 more.

3. Paying property taxes is a requirement for many homeowners and property owners alike. The FHA additionally requires the homeowners to pay property taxes and their mortgage payment to protect the lender if the homebuyer is forced into foreclosure due to uncertain circumstances. Perez (2018) identifies that this is important in that it protects the lender from having to foot the bill for the remaining property tax once the homeowner defaults. It is considered a requirement to pay property taxes monthly as part of your mortgage payment, or else the lender will have to foreclose on your property. This essentially protects the lender. Perez (2018) identifies that the property tax is collected and put in an escrow account where it accumulates and is paid by the lender to the county at the end of the year.
4. For the first option, John and Jane, the homebuyers, will have to pay a total of $170,977.88 in interest if the loan is paid to maturity. On the contrary, if they take the second recommended option, John and Jane, the homebuyers will have to pay a total of $57,729.84 in interest if the loan is paid to maturity. This further proves the claim that Option 2 is better than Option 1.
5. To save money on mortgage interest, John and Jane, the homebuyers, could choose to make bi-weekly payments. This adds up to 13 payments a year instead of 12 payments a year. American Financing (2020) identifies that the additional one payment will be converted to the principal amount, and the more the principal paid, the more equity an individual gets on the house. Jane and John could also make an extra mortgage payment every year. The homebuyers could save money every month and add it to the monthly payment to the tune of one additional month in payment at the end of the year. This will allow them to pay their loans off faster. American Financing (2020) identifies that by doing this, they may end up paying their loan in 27 years two months in stead of 30 years if they chose option 1. Finally, Jane and John, the homeowners, could decide to recast / or perform a re-amortization. This is paying off part additional money and talking to your lender to redraw the terms of the loan so that it is not considered a new loan rather the same loan only that they have reduced the principal amount offered in the first place. It is paying a lump sum amount and asking the lender to redraw the monthly mortgage payment to reduce the amount being paid every month.

References
American Financing. (2020). 5 ways to save thousands in mortgage interest. Retrieved from https://www.americanfinancing.net/saving-money/save-more-in-mortgage-interest
Perez. (2018). Are property taxes included in mortgage payments? Retrieved from https://smartasset.com/mortgage/property-taxes-included-in-mortgage-payments

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