Jacob Flekier Finance Project

Scenario 3

Jenny went to college for two years, and then dropped out. Unfortunately, by the time she dropped out of college, she had \$20,000 in student loans. She has been working as a bank teller for the last three years. Her salary is \$40,000. She also has a car payment of \$230 per month. She is excited to buy her first home.

Jenny's Financial Situation

She makes \$40,000 a year, but has to pay \$230 monthly for her car, \$230.16 a month for 10 years to pay off her student loans because she has \$20,000 to pay at an interest rate of 6.8%, and 30% of her salary goes to taxes, so she needs to pay \$12,000 annually to taxes. So she then only makes \$22,480 a year.

So before she is looking to buy the house, she has made \$22,480 a year for 3 years as a bank teller. But we haven’t taken into account living expenses and other savings. After subtracting living expenses per year, and multiplying that amount by 3 because she worked for 3 years saving money, she has \$49,440, but after subtracting money that she's going to save away, she has \$40,000 for a house payment.

But how much can she afford each month for a house?

She can now figure out how much she can afford per month. She is making \$16,480 a year to save up for the house, however she should probably save \$3,000 a year away for other things she needs to spend money on. Now she has \$13,480 a year that she can use for house related expenses. She will need \$3600 for utilities and insurance, and \$2000 for Real Estate Taxes annually (based on area) so she has \$7,880 left for a house payment per year, which is \$656.66 per month.

How much money for a loan can she afford to borrow?

She has a total of \$40,000 saved away from the 3 years she worked as a bank teller, so she can afford to make a down payment of that amount, and since the house costs \$161,900, she can afford to borrow a \$121,900 loan.

What is an interest rate for a 30 year fixed loan?

For a 30 year fixed loan rate, and she is buying a house for \$161,900 and needs a loan of \$121,900, Bank of America has an interest rate of 4.625%, as seen from their website in the mortgage rate calculator after typing in the cost of the house and the amount of money needed for a loan.

What is the minimum payment required each month once the mortgage has been approved?

The minimum payment required each month once the mortgage has been approved is \$627 a month, as seen from their website in the mortgage rate calculator after typing in the cost of the house and the amount of money needed for a loan.

How much time and money could be saved by increasing the minimum monthly payment by 15%?

Based on the Mortgage Calculator from Interest.com, when getting a loan of \$121,900 at an interest rate of 4.625% from Bank of America it would cost \$225,624.99 total to pay off the loan in 30 years. However, if you increase the monthly payment (\$627) by 15%, so you are paying \$94.05 extra a month (\$721.05 total a month,) you would end up saving \$27,937.38 in the end, and you would pay it off 7 years and 1 month earlier.