Term Project Part 3 Matt Willey

What effect does interest rate have on total payment? A lower the interest rate means less interest paid over all. When a person applies for a loan, certain factors determine the rate they will qualify for. Here are a couple:  Credit quality: A persons personal credit score can give a lender an accurate prediction whether they will be paid on time will full payments. Someone with poor credit will not qualify for a low rate since their past history shows lenders that he or she is not able to make payments on time.  Supply and demand: Lenders are able to charge higher interest rates when there is a greater demand for new mortgage loans. When demand falls, borrowers have a little more leverage in the rate they get, resulting in a lower rate.

What effect does length of loan have on total payment? The longer the length of a loan is, the more interest a buyer will end up paying. The plus side to a longer loan period, is that the monthly payments will generally be less expensive every month compared to a shorter term loan. This can be beneficial if a homeowner is having some sort of temporary financial troubles. However, a longer loan will accumulate a greater amount of interest over the years, which will cost the homeowner more money in the long run. Of course, a home owner may make additional payments every month to the mortgage in order to decrease the amount of interest, and to pay the loan off faster.

Additional Monthly Payments Additional monthly payments on a loan can save a person thousands of dollars in interest. Over the years, a homeowner may be able to afford to make larger monthly payments in order to pay off their mortgage faster. This will also reduce the amount of accumulated interest over the years. Example: Making an additional $100 payment on a 15 year mortgage for $108,000, can save a borrower nearly $5,000 in interest. Also, the loan will be paid off quicker, and the homeowner will own the house in a short amount of time.

15 Year Mortgage Positives Less interest paid overall Mortgage will be paid off in a shorter amount of time Negatives Higher monthly payments

30 Year Mortgage Positives Lower monthly payments Allows the borrower more flexibility with smaller payments Negatives Greater amount of interest paid Longer period of time until the borrower has paid off the mortgage

Renting Positives No long term commitment. Someone who is renting has the freedom of mobility without being tied down to a single location. Once a lease has finished, a person who is renting can easily move to a new location. Renters can also potentially end a lease earlier if they are willing to pay extra fees to do so. Ease of mind. If a person were to loose their job or encounter a significant loss of income, that person would be able to find a more affordable living situation far easier than someone who owns and would have to sell a property. Not responsible for any maintenance related issues. Homes need constant maintenance, and typically property maintenance is taken care of by the HOA or property management. This can include everything from essential landscaping needs, to basic property maintenance such as painting and doing necessary repairs. Also if a dishwasher breaks or a pipe bursts, the tenant isn't responsible for the cost of these repairs. Negatives Your money essentially disappears. Once you write your landlord a check, that money only goes towards paying that months rent, and not towards a future asset. Little control over the property. A person who rents typically isn't able to make any permanent changes to a property. A tenant may need to check with their landlord before they do something as simple as hang a picture on the wall. Lack of tax benefits. There are far fewer tax benefits for people who rent compared to homeowners.

Buying Positives Build equity with every mortgage payment. Every time a mortgage payment is made, that money goes towards a future asset, and that money can potentially be seen again one day. Freedom to make changes. Unlike someone who rents, a homeowner is free to make desired changes to their home, assuming the changes are built to code. A home owner doesn't need permission to paint their living room a different color, or remodel their kitchen. Negatives Requires a long term commitment. It's a lot harder for someone to sell their house, than it is to wait out a lease or end a lease early by paying a fee. Responsible for maintenance. The homeowner is responsible for all damages and maintenance related issues. Anytime an appliance breaks or the outside of the home needs to be repainted, it is the homeowners responsibility to repair and maintain at their own expense. Down payment. Typically a down payment is required upon purchasing a home. A large amount of cash is far more difficult to come up with, than a simple security deposit that's required when renting.

Applying What We Have Learned When it comes time to purchase my first home, this information will be very beneficial. At the present time, renting is the better option for myself. The main reason is because I am still finishing up school and making far less money now than I hope to be making once I start a career. For now, I am trying to build some credit while making sure my credit score remains very good. This will help me when it comes time to apply for a mortgage, insuring a better rate if my credit is good. If I were to make a prediction, I would guess that I would apply for a 30 year mortgage with plans to make additional payments down the road. I just see myself benefiting from smaller monthly payments when I'm first starting out, to eventually making larger payments down the road if my income has increased.