Project Part 3

1. Project Part 3 Daniela Velluto and Justin Hannon

2. Project PT 3 Topics Covered1. 15 year mortgage versus 30 year mortgage- pros/cons of each and how they relate to each other2. Down payment options –benefits of putting any or 10% down3. Interest Rate- It’s importance and how it relates to your mortgage4. Renting vs. Buying- pros/cons of each and how they relate to each other5. Amortization schedule- How its applicable to the life of your loan

3. 15 Year VS. 30 Year Mortgage There are many decisions to be made when you start apply for a mortgage loan. How much money will I be able to spend each month on a house? How long do I want to pay on this mortgage?. Paying on a mortgage loan for 30 years is typical, and in fact, many homebuyers assume they need to accept a 30-year mortgage term. However, this standard mortgage length is not written in stone, and you can choose to pay off your mortgage sooner with a 15-year loan.

4. 15 Year Mortgage • Pay Off the Mortgage Faster. One of the biggest benefits of a 15-year mortgage is the being able to quickly pay off your home loan. This option is perfect if you plan to stay put and don’t want to pay your mortgage for a lengthy period of time. Mortgage payments are huge expenses, but with your payment out of the picture, you can focus on other things like retirement, freedom, or even working less. • Save Money on Interest. Interest can quickly add up. For example, if you finance a property for $200,000 at 4% interest over 15 years, you’ll pay $66,288 in interest. However, if you finance a home for the same amount with the same interest rate for 30 years, you’ll pay a whopping $143,739. • Build Equity Faster. Equity is the difference between your house’s value and what you owe your home loan lender. Home equity builds as your property value increases and your mortgage balance decreases. Unfortunately, equity builds slowly with a 30-year mortgage because it takes longer to pay down the principal balance. However, since you pay less interest on a 15-year mortgage, you can build equity at a faster rate.

5. 30 Year Mortgage • Lower Monthly Payment. • Going with a traditional mortgage term and keeping your payments low can provide a measure of security and peace of mind. A longer term alleviates a larger monthly mortgage debt, allowing you to better manage financial mishaps. • Extra Cash to Increase Your Savings. • Sticking with a 30-year mortgage and keeping cash in your pocket gives you the opportunity to increase your personal savings. You can always add extra money to your mortgage payments on a voluntarily basis. This simple move helps pay down your balance sooner – but unlike a 15-year mortgage term, you can stop making higher payments at any time.

6. Down Payment Options: Benefits of putting any or 10% downDown Payment- By putting at least 10% down represents an investment up front for a long term investment.The advantage of putting 10% down would be it decreases your overall mortgage total leaving you with a lower principal to make payments with interest on. The less principal you have, the less interest you have to pay over the life of the loan depending on your mortgage term.The disadvantage of putting 10% down would be that it takes a while to save this amount of money, and could potentially set you farther behind on your path to home ownership. Over time inflation rises, so even 5% down today might not represent 5% in the future. A down payment also represents less risk for the lender as a client that puts 5% or even 0 down would be considered more of a risk, than one with 20% down.

7. Interest Rate: How it relates to your mortgage Interest Rate- By qualifying for a certain interest rate %, you can potentially decrease the total amount of interest paid on the loan over the life of the loan. Depending on your credit score, % down, and term of loan, you can qualify for a certain interest rate based off of the abovementioned. There are no cons of having a lower interest rate, only pros. By qualifying for an initial interest rate, or refinancing to lower your interest rate over time, you can save significantly in the long run over the life of your loan. Type of Loan- Interest rates also tie in with what type of loan you have and not only vary due to the type of loan, but can have significant results depending on your rate and length of mortgage loan.

8. Renting vs. Buying Is it better to rent or to buy? Most people have problems answering that question. Because, It depends on the state of housing and your circumstances.
 After 2008, when the U.S. economy bottomed out and the housing bubble burst, the standard belief that it’s always better to own, rather than rent, was turned on its head. When home values plummeted and many people found they were upside-down in their mortgages (owed more than the home was worth), the American dream of owning was shattered and renting was suddenly the desired living style.

Examining all the elements of this monumental decision of each side can always help in finding what is right for you.

9. Renting Pros • Lower cost upfront – As a renter, you will be required to pay first and last month’s rent and area without committing to it.  • Invest money elsewhere – You can take money that would normally be spent on a down payment and house costs and invest in something else • Uncertainty in your career -- If you think you might need to move in the near future renting gives you the freedom to come and go as needed. • Uncertainty in income – If you expect a pay hike or pay cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage. • Time to establish credit–By creating a history of on-time rental payments, it can help you build good credit that you would need to qualify for a mortgage. • No maintenance – When the pipe leaks under the sink, you don't head to your nearest hardware store, you head for the telephone and call the landlord. • Incidental expenses – Occasionally, the landlord might pick up costs for utilities. Cons • Control– You may have no control over the fluctuation of your rent. • Artistic Limitations– You might be limited in decorating the home or apartment. • Zero Equity– You won’t build equity in your home. • Not Your Own Boss– You are subject to the landlord’s decisions. • Pet Ownership- Let’s face it some landlords do not except fluffy or spot.

10. Buying Pros • Build equity– When you pay a mortgage, you increase your degree of ownership in your home with every payment. Also, you can borrow against your ownership (or equity) in the home to pay for major purchases and you can refinance your home at favorable rates to help fund major purchases. • Submit tax deductions – You can deduct mortgage interest as well as your property taxes. Have creative control–Go ahead and paint, draw, or sculpt. Wish you had another room? Go ahead and add one. • Maintenance choices – If you own a home, you can decide how to approach maintenance problems. • Pride of ownership – It might not make sense for everyone, but having a home you own is still the ultimate American Dream. Cons • Large down payment • Have to pay for maintenance • Locked In: If you lose your job. Want to move. Living conditions worsen. It is harder to get out then it is in renting a house.

11. Amortization Schedule: How its applicable to the life of your loan Amortization Schedule- This is applicable to the overall loan as it creates a big picture scenario of all the factors that go into your loan over time. It allows the homebuyer to recognize the total amount of the loan paid, the number of payments, the total interest paid, and when you start paying on principal instead of interest. This could be beneficial as it’s a straightforward list and is easy to read, allowing for a greater understanding for homebuyers trying to piece together the long term scenario of their loan. Also tied to this, could be any additional payments made on a monthly or yearly basis. It would calculate the total extra paid and could generate new data based on any additional payments. This could be beneficial not only on a principal and interest basis, but could show the homebuyer how much of a difference this extra payment would make and how many total payments could be saved over the life of the loan with extra payments along the way.

12. ParticipantsDaniela Velluto and Justin Hannon • Daniela contributed in the following areas: • Pros/Cons of 15yr vs. 30yr mortgage • Pros/Cons of renting vs. buying • Justin contributed in the following areas: • Down payment options- benefits of putting any or 10% down • Interest rate- how it relates to your monthly mortgage and length of mortgage • Amortization schedule-how its applicable to the overall life of the loan

13. Insights • Overall this project was very useful for real life applicability. It seemed like a practical real world example of material learned from this class, and is a great exercise in understanding how the entire process works, which will allow for better planning for the future. We both gained insight and understanding and am sure are more prepared for the process of home buying and mortgages. We also gained an understanding of looking at the pros and cons on the outlined topics which helped broaden our view on more than just the financial aspect of home buying. Lastly we learned the importance of finding the right situation that fits your life and budget, as a mortgage payment is a big commitment. Its all relative to your financial situation.