1. Aim: Money Matters: Home Ownership Course: Math Literacy Aim: How does money matter? Home ownership – the big Kahuna! Do Now:

2. Aim: Money Matters: Home Ownership Course: Math Literacy House Buying Terminology mortgage – the amount that is borrowed to buy real estate. The amount of a mortgage is the difference between the selling price and the down payment. mortgage = selling price – down payment down payment – normally between 10% and 30% closing costs – other expenses associated with purchase of home and are due at when sale of house is finalized (the closing) loan origination fee – also called points; equal to one percent of mortgage.

3. Aim: Money Matters: Home Ownership Course: Math Literacy Model Problem The purchase price of a home is $98,000. A down payment of 20% is made. The bank charges $450 in fees plus 2½ points. find the total of the down payment and the closing costs. down payment = 20% of 98,000 = 19,600 mortgage = selling price – down payment = 98,000 – 19,600 = 78,000 points = 2½ % of 78,400 = 1960 Total = 19,000 + 450 + 1960 = $22,010

4. Aim: Money Matters: Home Ownership Course: Math Literacy More Terminology adjustable rate mortgages (ARM) – rate is adjusted periodically to more closely reflect current rates fixed or conventional mortgages – rate is fixed for the life of loan. Terms of 15, 20, 25, or 30 years are most common. mortgage payment – the monthly payment foreclosure – bank takes possession of house due to non-payment of mortgage with right to sell to another buyer escrow account – part of monthly mortgage payment may go into this account to pay real estate taxes.

5. Aim: Money Matters: Home Ownership Course: Math Literacy Buying a House You purchase a house with a $100,000 loan to be paid off over 30 years in equal monthly installments. The interest rate for the loan is 6%. a)What is your monthly payment? b)How much will you eventually pay by the time the loan is ended in 30 years? c)How much is interest? Amortization – the process of paying off a debt by systematically making partial payments until the principal and interest are repaid. Amortization Formula P – the value of mortgage

6. Aim: Money Matters: Home Ownership Course: Math Literacy Buying a House You purchase a house with a $100,000 loan to be paid off over 30 years in equal monthly installments. The interest rate for the loan is 6%. a)What is your monthly payment? b)How much will you eventually pay by the time the loan is ended in 30 years? c)How much is interest? Amortization Formula r = 0.06 P = 100,000 t = 30 n = 12

7. Aim: Money Matters: Home Ownership Course: Math Literacy Buying a House You purchase a house with a $100,000 loan to be paid off over 30 years in equal monthly installments. The interest rate for the loan is 6%. b) How much will you eventually pay by the time the loan is ended in 30 years? c) How much is interest?

8. Aim: Money Matters: Home Ownership Course: Math Literacy Amortization – Principal/Interest Breakdown How much principal and interest are paid on the first payment on a loan of $134,000 at 6.5% for 30 years? 1) Find the monthly payment: Amortization Formula 2) Use simple interest formula for 1 st month: I = Prt I = 134,000(0.065)(1/12) monthly payment – interest = principal paid amortization schedules list the breakdown for each month

9. Aim: Money Matters: Home Ownership Course: Math Literacy Model Problem How much interest is saved on a $175,000 30-year fixed rate 7.5% mortgage if the time of the mortgage is reduced to 15 years. 1) Find the monthly payment @ 30 years: Amortization Formula r = 0.075 P = 175,000 t = 30 n = 12 2) Total payments @ 30 years: 3) How much is interest?

10. Aim: Money Matters: Home Ownership Course: Math Literacy Model Problem How much interest is saved on a $175,000 30-year fixed rate 7.5% mortgage if the time of the mortgage is reduced to 15 years. 1) Find the monthly payment @ 15 years: r = 0.075 P = 175,000 t = 15 n = 12 2) Total payments @ 15 years: 3) How much is interest?

11. Aim: Money Matters: Home Ownership Course: Math Literacy Can You Afford It? You wish to purchase a house for $225,000 with a down payment of $10,000 with a 30-year fixed rate mortgage at 6.48%. Your family income is $59,000. Lenders have guidelines that suggest families can afford to spend about 28% of monthly income on housing to include property taxes and insurance. Can you afford this house? 1) Find the affordable monthly payment:

12. Aim: Money Matters: Home Ownership Course: Math Literacy Early Payoff A homeowner has a monthly mortgage payment of $645.32 on a 30-year loan at an annual interest rate of 7.2%. After making payments for 5 years, the homeowner decides to sell the house. What is the payoff of the mortgage? Present Value of an Annuity Formula n·t is the remaining number of payments 30 – 5 years = 25 years of payments left

13. Aim: Money Matters: Home Ownership Course: Math Literacy Can You Afford It? You wish to purchase a house for $225,000 with a down payment of $10,000 with a 30-year fixed rate mortgage at 6.48%. Your family income is $59,000. Lenders have guidelines that suggest families can afford to spend about 28% of monthly income on housing to include property taxes and insurance. Can you afford this house? 2) Find monthly payment based on details of loan. r = 0.0648 P = 215,000 t = 30 n = 12 With taxes and insurance – not affordable

14. Aim: Money Matters: Home Ownership Course: Math Literacy Equity Equity – the Amount of principal of a loan that has been repaid In 1980 a house was purchase for $100,000 with a 30-year mortgage at 8%. After 22 years and 5 months, how much equity did the owner have? 1) Find the monthly payment @ 30 years: r = 0.08 P = 100,000 t = 30 n = 12

15. Aim: Money Matters: Home Ownership Course: Math Literacy Equity In 1980 a house was purchase for $100,000 with a 30-year mortgage at 8%. After 22 years and 5 months, how much equity did the owner have? 2) Find payoff for 7 years and 7 months of left: 360 total payments – 22 x 12 + 5 payments made = 91 payments left Equity = original loan amount – amount to be paid Present Value of an Annuity Formula n·t is the remaining number of payments