THE M E 4 SPENDING AND USING CREDIT

the costs of various mortgages. If youcannot find a mortgage calculator,checb with your teacher for help insecuring one that you can use.

Let's analyze four different mortgageswith different down payments, annualinterest rates, and time periods. All ofthe homebuyers are purchasing a$125,000 house.

Using the Computerto Calculate Payments

for a Loan

Computers can be very helpful infiguring out various aspects of aloan. In the following situation,

you will be worbing with mortgages,which are big loans on houses. Paymentsare extended over many years, such as 15

or 30 years. Repayments on mortgagesare generally made on a monthly basis.

The Internet has many mortgage calcu·lators that can assist you in comparing

I.Sean and Amber Johnson pay 20 percent down andtake out a $100,000 mortgage. It is a 30-year fixed­rate mortgage with an annual interest rate of 7 per­cent.

2. Alvin and Emily Jin qualify for a special mortgageprogram where the down payment is only 5 per­cent of the cost of the home. They take out a$118,850 mortgage. It is a 30-year fixed-rate mort­gage with an annual interest rate of 7percent.

J. Benny and Silvia Ramirez qualify for a special pro­gram that lowers their fixed annual interest rate to6 percent. They make a 20 percent down paymentand borrow $100,000 for 30 years.

4. Emily McGill knows that paying off a mortgagemore quickly will save her money. She makes adown payment of 20 percent and borrows $100,000 at a fixed rate of 6.5 percent. Because shewill payoff the mortgage in 15 years, her annual interest rate is lower than she would havepaid for a 30-year mortgage.

Compare these four mortgages by completing the chart on the next page. Notice that the monthlypayment and total payment (principal plus interest) are blank. You will fill these in using amortgage calculator.

Using a mortgage calculator is easy. Just plug in the principal, annual interest rate, and term(in years) for each of the four mortgages. Check monthly payment amounts and total payments.Now use a mortgage calculator and fill in the rest of the chart.

I'X ERe I'E

6.1

96Financial Fitness for Life: Bringing Home the Gold Student Worl>outs, ©Council for Economic Education

EXERCISE 16.1

Mortgage Chart

~~age~·T~:;~:;-;Fa~~Home price

$125,000$125,000$125,000$125,000

Down payment % Down payment $PrincipalAnnual interest rateTermMonthly paymentTotal interestTotal payment (down pay-ment, principal, and interest)

Based on your chart, answer the following questions.

I~What happens to the monthly payment and total payment for a loan with a smallerdown payment?

2. What happens to the monthly payment and total payment for a loan with a lower annualinterest rate?

J. What happens to the monthly payment and total payment if the term of the mortgage is

IS years rather than 30 years?

4. What is the trade-off if you get a IS-year mortgage rather than a 30-year mortgage?

s. How can you reduce your cost of buying a home?

Financial Fitness for Life: Bringing Home the Gold Student Worl>outs, ©Council for Economic Education