Are You Familiar With Amortization Spreadsheets?

Are you familiar with amortization spreadsheets?

Ivana Newhouse knew nothing about them. In fact, she had never even heard of an amortization spreadsheet.

Ivana didn’t understand how much difference the interest rate can make in the affordability of a home. She wasn’t sure why her fiancé, Homer, insisted it was such a perfect time to buy a house.

Ivana thought that housing prices would continue to decrease as the country headed deeper into recession. She wanted to wait until real estate prices bottomed out. Wouldn’t that be better?

As a computer science major, Homer Buyer had plenty of experience with spreadsheets, and he had even worked with loan amortization on a few of his school projects. He was pretty familiar with the concept of amortization spreadsheets.

Homer knew that interest rates were sure to rise soon. Mortgage rates were at the lowest point he could remember.

He also knew that timing the bottom of the housing market was difficult to do. You could only know when it hit bottom if prices started to go up again, and then it was too late to take advantage of the low prices.

If you waited until then to start looking for a house and a loan, by the time you were ready to make an offer, prices could be much higher.

He figured that if he found a good deal in today’s market, then even if prices dropped a little more it would still be a good deal. If interest rates went up, that could cost even more over the term of the loan than paying a lower initial purchase price.

Homer showed Ivana an amortization spreadsheet and entered some numbers as an example to show her the effect of a change in interest rate.

He calculated a $100,000 loan over 30 years at 5.5%. The total interest paid came to $104,404 and the monthly payment was $567.69

Then he calculated a $95,000 loan over 30 years at 6% interest. The total interest paid was $110,045 and the monthly payment was $569.57.

So were they really saving money by waiting for prices to drop?

Homer wanted to be ready make an offer as soon as he found a good deal on a property. First he needed to lock in a good interest rate on a mortgage to be able to fully understand the cost of the home.

Homer knew he should check with several lenders and mortgage brokers to get the best deal. He checked Angie’s List to get unbiased reviews of some mortgage companies to start his search. Find reviews on the services you need at Angie’s List – from electrician to physician – Use promo code “SAVE TEN” for $10 off!

He knew how to use his spreadsheet to compare the mortgages and calculate the overall costs of a loan. Get your own free amortization spreadsheet (requires Microsoft Excel or OpenOffice.org to run).

Allen Davis
RealEstateSearchDirect.com