# Jenny's Future Home

## Scenario

Jenny has just left college after two years of attending, and is looking for a home to purchase. Unfortunately, by the time she dropped out, Jenny had already accumulated \$20,000 in student loans. Jenny currently works as a bank teller and has a salary of about \$30,000 to help pay off the debt. She also has purchased a car which she pays \$400 monthly.

## Jenny's Student Loan

Jenny has accumulated a student loan of \$20,000 at a 6.8% interest rate and has 10 years to pay it off. In order to calculate what she must pay monthly, a present value equation must be used. Once everything is plugged in (i.e. her student loan, interest rate, and number of years), you are able to see that her monthly payments comes out to be \$230.16.

## Monthly Earnings and Monthly Expenses

Earnings

Yearly Income: \$30,000

Monthly Income: \$2,500

Expenses

Student Loan: \$230.16

Food: \$600

Clothes: \$60

Gas: \$80

Utilities: \$355

Entertainment: \$150

Phone: \$60

Transportation: \$50

Car: \$400

Total Net Income

(Monthly Income-Monthly Expenses)= \$514.84

## Jenny's First Home

After much searching, Jenny found at bankrate.com that they had 2.7% mortgage rate on Sunday May 22.

The real issue however, if how much does Jenny have to spend on a house? In order to find this out, we must again use the present value equation. By using the amount of money Jenny has left over per month, we can find the maximum priced house that Jenny can afford. In this case for a 30 year fixed loan, Jenny can afford to pay \$126,933.68

## Finding the Perfect Home

After just a few weeks of searching, Jenny has finally come across the perfect house for her. Her future home lays in Overland Park Kansas and will only cost her \$112,000. With the price being lower than what she can afford, Jenny decides to buy the house. With the mortgage rate that Jenny found, using the present value equation, we find that her monthly payments turn out to be \$454.27, a great value for a great first home!

## Early Payment

Jenny has decided that she wanted to evaluate her payment if she payed a little more per month that required. She has decided to increase her payments by 15% to see how much time would be cut off from the original time. Instead of paying \$454.27, Jenny increased the price to \$522.41. With the new amount, she discovered that it would only take her about 293.11 months to pay off the full price. This would reduce the time by about 67 months or 5.57 months.

With this new information, Jenny decided to also see how much money this could potentially save her. In order to do this, Jenny multiplied the monthly payment by the number of months it would take her to pay it off.

Original First Payment: 360*454.27=\$163,537.20

New Payment: 293.11*522.41= \$153,123.60

Money Saved: \$163,537.20-\$153,123.60= \$10413.60

## Sources

Bankrate:

Welcome to Bankrate. (n.d.). Retrieved March 22, 2015, from http://www.bankrate.com/

Zillow:

Single Family Homes For Sale - 2 Homes | Zillow. (n.d.). Retrieved March 22, 2015, from http://www.zillow.com/homes/for_sale/Overland-Park-KS/fsba,fsbo,fore,new_lt/house_type/75653871_zpid/40202_rid/85000-115000_price/310-419_mp/days_sort/39.057051,-94.349556,38.777105,-95.019722_rect/10_zm/0_mmm/