Ashley Allen

Math 1030
Chin Yah Yeh
August 5, 2016
Final Project
What Im doing, why I chose the topic, and any hypothesis I have.
For my final project Im expanding on a topic learned in class which taught me about
home mortgages. In completing the home project, I learned valuable tools which can be helpful
in making wise financial decisions. Its important for my future to get an idea of how Im going
to buy a home, so Im going to make calculations with formulas I learned to see if I will be able
to afford a condo or a home, what the best option is, and by what age and year I will have my
mortgage paid off. Though Im not certain what the best option will be with all the data yet, I
know a 15-year loan is generally less money than a 30-year loan overall. I expect this project to
motivate me and aid me in creating realistic goals for my future.
How I plan to approach my topic and what I need to do it.
To get ideas flowing on how I plan to approach my topic, I found a condo I love and
would like to buy that costs precisely $199,999. Though I would love to buy the condo now, Im
not in the financial place to do so. Thus, Im going to assume Im buying the same condo in 8
years from now, when I have expectantly completed graduate school and have accumulated
savings for a down payment. I plan to first update and calculate my budget by subtracting all my
expenses from my net income. Based on the outcome, I will know my monthly cash flow which
will go to savings for my down payment. Next, I will need to account for appreciation on the
home because home prices tend to increase with time. Once I have the future cost I will gather
data to find out how much possible monthly payments will cost. Then Ill research what I can
expect to make as a Psychologist in Utah, which will help me assess what I will be able to afford.
Finally, I will compare and analyze my data and draw a conclusion on the best plan in attaining

my goal of becoming a home owner as well as conclude the age and year at which my condo will
be paid off.
Information I used and what I did, or didnt do, with it.
After updating my current budget, I subtracted my total expenses from my total net
income to discover my monthly cash flow of $200.19. By setting this money aside each month, I
will have saved $2,402.28 after the first year of saving, as $200.19 multiplied by 12 months
gives this outcome. Next, I multiplied the $2,402.28 savings by 8 years to see how much I could
save for my down payment. These calculations reveal a total savings of $19,218.24. By
subtracting the savings of $19,218.24 from the total cost of $199,999, the new mortgage loan
would be $180,780.76.
Realizing mortgage prices tend to increase each year, I did some research and found
average annual appreciation rates in Utah. With data given for various time frames, I used the
mean of the following five data points: 4.70% since 1990, 2.26% for the last 10 years, 3.58% for
the last 5 years, 5.86% for the last 2 years, 6.40% for the last year, and 6.01% for the last 3
months. The mean came to 4.80% and the median 5.28%. With no outliers, I decided to go with
the mean as it appeared to give a more reflective average for a longer length of time. Next, I used
the exponential growth formula to discover what my $199,999 condo would cost. By Plugging in
the mean of 4.80% for r and 8 years for t, my new mortgage total came to $291,017.
Q = Q0 x (1 + r) ^t =

199,999 x (1 + 4.80%/ 100) ^8yrs =

$291,017

After getting the new cost for the condo I proceeded by subtracting my down payment of
$19,218.24 from the new condo price, which brought my new mortgage down to $271,798.76.
Knowing the amount of my mortgage loan, I was almost ready to find my loan and monthly
payment options.

Before determining my monthly payments and loan options, I needed an estimated

interest rate for my loan. Because my Experian credit score states I have a very good credit
score history and subsequently have the lowest auto loan rate with America First Credit Union
(AFCU), I assumed AFCUs low advertised interest rates of 3.50% for a 30-year loan and 2.75%
for a 15-year loan. Having interest rates and the total mortgage amount, I had all the data needed
to calculate my monthly payments with the loan payment formula. I simply replaced 0.0350 and
0.0275 with APR, the total loan amount with P, 30 and 15 with Y (years), and 12 with n, which is
number of payments per year.
PMT= P x (APR/n)
[1- (1 + APR/n) ^(-nY)]
The results of the loan payment formula showed I would be paying installments of either
$1,220.50 for a 30-year loan, or $1,838 for a 15-year loan. Because the home project taught me a
15-year loan ends up costing less overall, I multiplied both loans by their total number of
payments to see what both totals would be (360 payments for the 30-year loan and 180 for the
15-year loan). The outcome of the 30-year loan implied that it will cost me a total of $439,380,
while the 15-year loan total would be $350,062.80. The difference, found by subtracting the 15year total from the 30-year total, was quite alarming, as the 15-year loan is $89,317.20 less than
the 30-year loan. Realizing this savings would be nearly half the cost of the condo at its cost
today, I hoped my income as a PhD Psychologist would be enough money to get the 15-year loan
so I would at least spend less money even though I couldnt get the condo now.
To discern if I could afford the high monthly payments of $1,838, I did some research to
find the income of Psychologists with a PhD in Utah. Based off recently updated HR data,
salary.com showed a median salary of $84,718 for several Utah cities including Salt Lake City,
which is where I primarily want to work. Needing to find my net monthly income, I first found

the tax rate for this income level. By assuming I find a job in which I make the median after my
graduate program, I will be in a 15% tax bracket, and based off 2016 tax brackets, Ill be taxed
25% on top of anything I make over $37,650. This first income portion would be taxed
$5,183.75, but because Ill make $47,068 over $37,650, I multiplied 0.25 by 47,068 which came
to $11,761 in taxes. Adding the total taxes came to $16,944.75. Next, by subtracting the taxes
from the gross income amount, I got a net annual income of $67,773.25. The last step was
dividing the net annual by 12 months, which ultimately gave me a net monthly income of
$5,647.77. In making this much monthly I doubt Ill have a problem paying the installments on
the 15-year loan, especially since income levels rise with inflation, which I didnt account for.
The Outcome
Of course its possible my data estimations for the future will be off, but if they end up
being reasonably accurate and I accomplish my goal of attaining a PhD in roughly 8 years, its
very likely I will be able to afford a 15-year mortgage for a condo worth roughly $200,000 today.
If Im able to make this happen, I will be 32 years old when I first buy the house and only 47
when the house is paid off, and this is without making any extra payments. Though $1,838
sounds like a lot to pay each month right now, it likely wont seem as unmanageable in the year
2024. Also, having $3,809.77 left to pay other bills should be me more than enough, especially
because my car will be paid off and I gratefully have most my schooling paid for through a
veterans program. With minimal total debt, I shouldnt have a problem getting a 15-year
mortgage loan approved.
Conclusion: The meaning of what I have done and found
I am hopeful and driven to get my PhD, a good paying job that I love, and a condo with a
15-year mortgage loan. I have known I want to buy a house down the road for a while, but prior
to this project I didnt have a plan in place. Now Im aware of important steps to take If Im

going to attain these goals. I believe having new objective goals and values in mind will make it
easier for me to make decisions, because I will know what will get me closer to where I want to
be. Making choices without thinking of goals can lead some to impulsive decision making,
which in turn can lead to negative outcomes such as failed tests, health issues, and addiction.
With concrete ideas in how I will reach my goals, Im looking forward to being a witness of each
step along my way.

Bibliography
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"Here's How Tax Rates and Brackets Will Change in 2016." Time. Time, n.d. Web. 05 Aug. 2016.
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