Interest Rates, Mortgages, and the Money Supply Family 2: Your family has a net yearly income (after taxes) of 72,000. You wish to purchase a home that costs $300,000. For each of the following scenarios, determine whether or not you would likely be able to afford a loan for the amount necessary to cover the mortgage. Step 1: Assuming your bank will lend you enough money so as to keep your monthly payments below 30% of your income, determine how much you can afford in monthly payments given your income. Maximum mortgage payments = (Yearly Income/12) * 30% Step 2: Use the mortgage calculator from Zillow.com to determine if the bank would likely be willing to lend you enough to afford the home in each scenario. Scenario 1: Your bank is offering an interest rate of 4.0% for a 30-year fixed rate loan, but you have no money for a down payment. Scenario 2: Your bank is offering an interest rate of 4.0% for a 30 year fixed rate loan, and you have $60,000 to make as a down payment, which eliminates the bank's requirement for mortgage insurance. Analyze: What impact did having saved enough to make a 20% down payment have on your ability to afford a home loan? Scenario 3: Your bank is offering an interest rate of 5.3% for a 30 year fixed rate loan, and you have $60,000 to make as a down payment, which eliminates the bank's requirement for mortgage insurance Scenario 4: Your bank is offering an interest rate of 6.9%, and you have $60,000 to make as a down payment, which eliminates the bank's requirement for mortgage insurance. Analyze: What impact did have a 6.9% interest rate vs. a 5.3% interest rate have on your ability to afford the home loan? Summarize: How could the Federal Reserve changing the interest rates they charge member banks affect people's abilities to take out loans, and thereby affect the supply of money? (Le. what happens if the Fed raises rates? What if rates go down?)