1. Mortgages and Amortization
What you should know about buying a home…

2. Buying a Home is Big $$
Buying a home is usually the single biggest financial decision most families make. Since most people don’t save up for the entire cost of a home, most people usually obtain a mortgage in order to purchase their homes.

3. Defining the Terms What is a Mortgage?
A loan specifically secured by the value of a real estate property.
Usually for the purpose of buying a house.
Can be used to purchase other items as in 2nd and 3rd Mortgages

4. Defining Terms cont’d Amortization Amortization period Mortgage Term
the gradual elimination of a debt or liability
Usually displayed in a detailed table called an amortization table
Amortization period
The time period over which the mortgage is calculated e.g. 25 years
Mortgage Term
The length of the mortgage agreement
Usually ranges from 1 to 5 years but may be longer

5. Mortgage Term vs. Amortization Period
The Johnson’s have recently purchased a new home. They take out a mortgage of $ at 5% per year compounded semi-annually for 20 years. Their current rate is fixed for 4 years at which time they will renegotiate the interest rate.
Which is the term?
Which is the Amortization period?
4 years
20 years

6. More Time with Borrowed Money Means it Costs More
As you have already learned the longer you take to pay off any loan the more you actually end up paying for that borrowed money.
In fact many people end up paying almost double the original purchase price of their home by time they pay the mortgage off in full.
So wise people aim to pay off their debts ASAP!!

7. Amortization Tables
Are tables that show the breakdown of the principal, payments, interest paid, and unpaid loan balances over a certain time frame

9. Sample Amortization Table
Online mortgage calculators can be found on many websites. Here are just two:
When you look at an amortization table/schedule notice that at first the interest paid is higher than the principal paid. Remember principal is what you borrowed while interest is the extra you are paying to borrow the funds

10. Important Things to Know About Mortgages
Under Canadian Law the compounding frequency on a mortgage cannot be more frequent than semi-annually
Mortgage payments are usually made on a monthly or more frequently basis
All mortgage companies in Canada require a down payment before giving a mortgage.
The larger the down payments the smaller one’s mortgage and the better the interest rate

11. Calculating Mortgage Payments
Since the payment period and compounding periods are different we can not use the normal PVOA formula where we divide the interest rate by the compounding frequency
There is a formula for adjusting the “i” value but we will be using the TVM Solver on the graphing calculator to do the calculation instead.
When using the TVM Solver we set the P/Y=12 to show the monthly payment frequency and we set the C/Y = 2 to show semi-annual compounding in order to show these differences in periods

12. Sample Question
Jessica and Chris recently purchased their first home for $ They made the minimum 5% down payment and mortgaged the rest. They agreed to a five-year term mortgage amortized over 20 years at 5.99% per year.
A) Calculate the down payment
DP = 0.05 x
= $ 9775

13. Calculate the amount of Jessica and Chris’ mortgage.
Mortgage Amount = House Price – DP
= – 9775 =
Use a TVM Solver to determine the amount of their monthly payment.
N = 20x I% = PV =
PMT = FV = P/Y = C/Y = 2
Using Alpha Enter with the cursor beside PMT
PMT=

14. d) Calculate the total amount paid over 5 years. PMT x 60
They would have made 12 payments every year for 5 years. 5 x 12 = 60 payments
PMT x 60
= x 60
= $
Calculate the total interest paid in five years
Without deleting the data on the TVM solver press 2nd Mode to quit the program.
Press APPS enter (or 2nd Finance) then scroll down to A:∑Int( and Press Enter.
Type in , ) and Press Enter to calculate the answer. Why? The 1 is the 1st payment #, the 60 is the last payment # in the set you tell it to use.
Total Interest =