Home mortgage rates are determined by market forces and individual borrowers can't do much about them. The time it takes to pay off a mortgage loan, however, varies a great deal with the size of the monthly payment, which is under the borrower's control.

You're a junior loan officer for a large metropolitan bank. The head of the mortgage department is concerned that customers don't appreciate that a relatively small increase mortgage payments can make a big difference in how long the payments have to be made. She feels homeowners may be passing up an opportunity to make their lives better in the long run by not choosing shorter-term mortgages that they can readily afford.

To explain the phenomenon to customers she's asked you to put together a chart that displays the variation in term with payment size at typical interest rates. The starting point for the charts should be the term for a typical thirty-year (360-month) loan. Use the TIMEVAL program to construct the following chart.

Write a paragraph using the chart to explain the point. What happens to the effect as interest rates rise? Why?

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Mortgage Payments per $100,000 Borrowed as Term Decreases MORTGAGE TERM IN YEARS 30 25 20 15 4% 5% 6% 7% 8% RATES