Buying a House: Studying Financial Aspects Essay

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Buying a house or other real estate is a long and responsible process, where knowledge of mathematics will help you understand and possibly save money. First, most often new residential real estate is bought with the help of mortgage banking services. This process is strongly associated with many variables that affect the actual price that a person ends up paying for a house. This includes the annual rate, which is charged on the balance of the debt annually; the ratio of the actual debt paid or interest on it; the term of the mortgage, which affects the monthly payment and the amount of payment after it. By adjusting these parameters, this undertaking can be quite difficult for a person, especially considering that mortgage terms are calculated in decades. For example, if a person wants to take out a mortgage loan of $100,000 and there are offers at 1.2% per annum for 25 years, or at 1.5% for 15 years, then in the first case $130,000 will be paid, and in the second $122,500, although the rate was higher. In this regard, knowledge of mathematics becomes vital in this situation, since the conclusion of such contracts affects a significant part of a person’s life, is associated with many risks. By resorting to various offers of banks, a person, knowing how to calculate these indicators, will be able to choose the best one and save as much money as possible, for example, on repairs.

Secondly, there is another important aspect of paying for a house, which involves a down payment. The size of the mortgage depends on its size, as well as the remaining part of the payment after the deposit, if the property is bought for cash. Quite often, the larger the down payment, the better mortgage conditions the borrower can get, and the faster they also move into new housing (Agnello et al., 2020). Sellers accept concessions and discounts if the buyer is willing to provide payment to them right now, even if it is not the whole amount requested. For example, if you immediately deposit 50% of the cost of a house, then the bank is ready to offer a rate of 1.2%, instead of 1.8% when less than 50% of the deposit is paid immediately. In this case, with a house value of $100,000, the overpayment could be reduced by $3,000 – paying $50,000 straight away, the mortgage is $50,000 left, so this is the difference between a $9,000 overpayment and $6,000 at different rates (Consumer Math, 2020). In such situations, knowledge of mathematics can allow you to communicate in the same language with the seller, when it comes to the percentage of the down payment or deposit, and the amount of discount that the owner of the house is willing to provide. In the case of a mortgage, its term, interest rate, monthly payment and many other important indicators can be reduced, which greatly affect the financial capabilities and prospects of a property buyer. Therefore, in addition to the basic bank values when calculating a mortgage, the size of the first installment plays an important role.

Finally, mathematical calculations can come in handy when planning the renovation of a new home. For example, if ordering turnkey repair services costs $300 per square meter, and the buyer wants to attract craftsmen only for one room with dimensions of 4.5m by 2.5m, then knowledge of mathematics can help calculate the approximate cost of work without a measurer. In this case, it will be 300*(4.5*2.5) = $3375.

References

Agnello, L., Castro, V., & Sousa, R. M. (2020). . The Journal of Real Estate Finance and Economics, 61(4), 607-670. Web.

Consumer Math. (2020). https://www.excelhighschool.com

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