# Precalc Finance Project–Scenario #1

## Brents Bakground

Hi, my name is Brent and I am a construction foreman who did not attend college. I am 24 years old, and earn an annual salary of \$60,000. I have to make monthly car payments of \$450. I am wanting to buy my first house in the next few months!

## Monthly Amount

To determine the monthly amount Brent could afford I first took out 30% for taxes, that left me with \$42,000. I then took out monthly payments of \$450 for his car loan, \$300 for utilities, \$200 for food and clothing, \$120 for gas, \$100 for insurance, and \$100 for entertainment and miscellaneous expenses. According to my mom those payments would be about the right amount for a single man living on his own. Overall Brent is able to afford monthly payments of \$2230.

## Total Amount Brent Can Afford

With all monthly expenses taken out, Brent has \$2,230 a month. Taking into account unexpected costs and savings money, Brent can comfortably spend around \$1,200 a month on mortgage. After going to the Bank of America website I discovered that the rate for a 30 year fixed loan is 4.625%. I plugged that into the present value equation (pictured to the right) to find out that Brent can afford to borrow \$233,399.68. Meaning Brent can afford a house with a maximum value of \$233,399.68.

## Minimum Monthly Payment

After finding a house with the total cost of \$210,000 and an interest rate of 4.625%, the minimum monthly payment Brent would need to make would be \$1,079. To find this I used the present value equation (pictured at the right).

## Increasing Minimum Monthly Payment by 15%

If Brent were to increase his minimum monthly payment by 15%, he would be paying \$1,240.85 a month (1,079 x 1.15= 1,240.85). By increasing the payments to \$1,240.85 Brent would complete his house payments in 274.6 payments or about 22.8 years – paying \$129,496.56 in interest. With his original payment of \$1,079 a month Brent would complete his house payment in 360 payments or 30 years – paying \$178,440 in interest. By increasing his monthly payment by 15% it is obvious that Brent would save a lot of money and time. More specifically Brent would cut off about 7.2 years of mortgage payments and overall he would save \$48,943.44. (All justification shown below)