1. Borrowing to Buy a Home 6.1

2. Down Payments and Closing Costs Terms to know: – Down Payment – Mortgage Loan – Principal – Closing Costs – Points

3. Down Payments and Closing Costs (Cont.) Formula’s to know – Calculate the amount of loan you will need… Mortgage Loan = Purchase Price – Down Payment – Amount of money you need to borrow… Cash Needed to Buy a Home= Down Payment + Closing Costs

4. Down Payments and Closing Costs (Example) Joe is buying a house for $74,000. 20 % down payment Estimates closing costs as: – Legal fees $950, Title insurance $140 – Property survey $250, Inspection $175 – Loan processing fee $84, Recording fee $740 How much will the mortgage loan be? How much cash is needed?

5. Down Payments and Closing Costs (Solution) How much will the mortgage loan be? (Mortgage Loan = Purchase Price – Down Payment) Down Payment = 20% X $74,000 = $14,800 Mortgage Loan = $74,000 - $14,800 = $59,200

6. Down Payments and Closing Costs (Solution Part 2) How much cash is needed? (Cash Needed = Down Payment + Closing Costs) Total closing costs = $950 + $140 + $250 + $175 + $84 + $740 = $2,339 Cash needed = $14,800 + $2,339 = $17,139

7. Check For Understanding (Solution A) How much will the mortgage loan be? (Mortgage Loan = Purchase Price – Down Payment) Down Payment = 25% X $86,000= $21,500 Mortgage Loan = $86,000 – $21,500= $64,500

8. Check For Understanding (Solution B) How much cash is needed? (Cash Needed = Down Payment + Closing Costs) Down Payment = 5% X $64,000= $3,200 Total closing costs = $64,000 x 3.5%= $2,240 Cash needed = $3,200 + $2,240= $5,440

9. Mortgage Loan Interest Costs Terms to know: – Two most common types of loans Fixed rate mortgage Variable rate mortgage – Amortized

10. Mortgage Loan Interest Costs (Example) Anika wants to buy a home for $83,000. She will pay $13,000 down payment Loan is $70,000 for 25 years @ 8% What are Anika’s monthly payments? What is the total amount of interest she will pay over the term of the mortgage?

11. Mortgage Loan Interest Costs (Solution) What are Anika’s monthly payments? 1.You will use the Amortization Table in your packet… 2.Match the amount with the number of years under the % of the loan… 3.$540.27 is the monthly payment

12. Mortgage Loan Interest Costs (Solution) What is the total amount of interest she will pay over the term of the mortgage? 1.Figure out number of months… 25 years x 12 months/year = 300 months 2.Number of months x monthly payments 300 x $540.27 = $162,081 (total payments) 3. Total payment – amount of mortgage = Interest paid $162,081 - $70,000 = $92,081

13. Mortgage Loan Interest Costs (Solution C Part 1) Find the monthly payments… Look at the Amortization Table under $80,000 and 20 years @ 7% Monthly payment = $620.24

14. Mortgage Loan Interest Costs (Solution C Part 2) Find the total amount to be paid in interest over the 20-year loan payment… 1.Figure out number of months… 20 years x 12 months/year = 240 months 2.Number of months x monthly payments 240 x $620.24 = $148,857.60 (total payments) 3. Total payment – amount of mortgage = Interest paid $148,857.60 - $80,000 = $68,857.60

15. Mortgage Loan Interest Costs (Solution D Part 1) What is the monthly payment? Look at the Amortization Table under $40,000 and 25 years @ 6% Monthly payment = $257.72

16. Mortgage Loan Interest Costs (Solution D Part 2) What is the total interest they will pay on the loan over the 25 years? 1.Figure out number of months… 25 years x 12 months/year = 300 months 2.Number of months x monthly payments 300 x $257.72 = $77,316 (total payments) 3. Total payment – amount of mortgage = Interest paid $77,316 - $40,000= $37,316

17. Refinancing a Mortgage Terms/Things to know: – Interest rates go down…businesses and property owners refinance or look for lower rates. – Refinancing Pay fees and closing costs

18. Refinancing a Mortgage (Example) Amy had a fixed rate mortgage at 9.65% with an unpaid balance of $40,000 and a monthly payment of $511.09. Amy’s new mortgage @ 7.98% for the $40,000. The monthly payment is $340.73. – Paid closing costs of $935 – Paid Prepayment penalty of $500 How much did Amy save in the first year by getting the new mortgage?

19. Refinancing a Mortgage (Solution) How much did Amy save in the first year by getting the new mortgage? 1.Old monthly payment x # of months in a year = 1 years payment under old mortgage. 12 x $511.09 = $6,133.08 2. New monthly payment x # of months in a year = 1 years payment under new mortgage. 12 x $340.73 = $4,088.76

20. Refinancing a Mortgage (Solution- Continued) How much did Amy save in the first year by getting the new mortgage? 3. Old mortgage payment for 1 year – new mortgage payment for 1 year = difference in yearly payment $6,133.08 - $4,088.76 = $2,044.32 4. Calculate the total costs for new loan $935 + $500 = $1,435

21. Refinancing a Mortgage (Solution- Continued) How much did Amy save in the first year by getting the new mortgage? 5.Difference in yearly payments – total costs of new loan = amount saved in first year $2,044.32 - $1,435 = $609.32

22. Exercises due – Web Quest – http://www.yorkville.k12.il.us/webquests/HomeB uying/HomeBuying.html http://www.yorkville.k12.il.us/webquests/HomeB uying/HomeBuying.html