A mortgage is a loan used to purchase a home. It is usually paid back over a period of 15, 20, or 30 years. The interest rate is determined by the term of the loan (the length of time to pay back the loan) and the credit rating of the person borrowing the money. Once a person signs the documents to borrow money for a home, they are presented with an amortization table or schedule for the mortgage that shows how much of a monthly payment goes toward interest and how much goes toward the principal (the amount borrowed). A mortgage calculator can be used to determine the monthly payments for a mortgage. One such calculator can be found with the following link. mortgage payment calculator It is a good idea to test the mortgage calculator. You should find that the monthly payment on a $200,000, 30-year loan with zero down at 5%, is $1,073.64. For a particular home, the mortgage amount needed to purchase the home is $135,000. There are 2 options for a fixed-interest-rate loan. One option is a 15-year loan and the other option is for a 30-year loan. Use a mortgage calculator to find the monthly payment. Then determine the total amount paid out over the term of the loan and the amount of interest paid during the term of the loan. Part 1 Exercises: Find the following for a 15-year loan of $135,000 with an interest rate of 2.75%.

1. What is the monthly payment?

2. What is the total amount paid for the 15 year term of the loan?

3. What is the interest that has been paid during the 15 year term of the loan? Find the following for a 30-year loan of $135,000 with an interest rate of 3.5%.

4. What is the monthly payment?

5. What is the total amount paid for the 30 year term of the loan?

6. What is the interest that has been paid during the 30 year term of the loan? Home ownership has other expenses, including property taxes, homeowner’s insurance, and utilities. The annual property tax can be estimated as 1% of the amount borrowed and the annual homeowner’s insurance can be estimated as 2% of the amount borrowed.

7. For a mortgage of $135,000, find the following.

a. What is the MONTHLY amount of property tax.

b. What is the MONTHLY amount of homeowner’s insurance. 3

8. If the monthly utilities can be estimated to be $200, find the following.

a. For the 15 year loan, find the total monthly payment, including mortgage, tax, insurance, and utilities.

b. For the 30 year loan, find the total monthly payment, including mortgage, tax, insurance, and utilities. Housing expenses are an important part of a personal budget. Use the internet to research what percent of a household’s monthly income should be used for housing. If the median household income in Volusia county is $3000 per month, answer the following questions.

9.

a. What percent of household income should be used for housing?

b. Could a typical Volusia county household afford the home with the 15-year mortgage? Why or why not?

c. Could a typical Volusia county household afford the home with the 30-year mortgage? Why or why not?

10. What other expenses should a person consider for their monthly budget? How might these expenses affect the decision of whether to purchase a home?