Part 1: Mortgage 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 $125,000. 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 $125,000 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 $125,000 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 $125,000, find the following. a. What is the MONTHLY amount of property tax. b. What is the MONTHLY amount of homeowner's insurance. 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? Part 2: Credit Cards Another type of personal loan is a credit card. A financial institution allows you to charge a purchase to your account, and you are required to pay the financial institution at a later time. As with other loans, credit cards charge interest. Interest rates can range from 3% - 22%. When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the larger the minimum payment will be. You can use credit card payoff calculators such as the one in the following link to determine how much to pay each month and how long it will take to pay off a credit card. credit card calculator When using the credit card calculator, be certain that the monthly charges (new spending or borrowing) are set to 0. Part 2 Exercises: Assume you have a balance of $1,900 on a credit card. Use the credit card payoff calculator to answer the following questions. 1. a. If the credit card has an annual interest rate of 13.6% and only the minimum monthly payment of $35 is made, how many months will it take to pay off the credit card? 2. b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $35? a. If the credit card has an annual interest rate of 13.6% and a monthly payment of $55 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $55? 3. a. If the credit card has an annual interest rate of 22% and only the minimum monthly payment of $45 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $45? 4. a. If the credit card has an annual interest rate of 22% and a monthly payment of $80 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $80? 5. What are some reasons the interest rates on credit cards vary? 6. What are your opinions on having and using credit cards your purchases? Part 1: Mortgage 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 $125,000. 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 $125,000 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 $125,000 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 $125,000, find the following. a. What is the MONTHLY amount of property tax. b. What is the MONTHLY amount of homeowner's insurance. 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? Part 2: Credit Cards Another type of personal loan is a credit card. A financial institution allows you to charge a purchase to your account, and you are required to pay the financial institution at a later time. As with other loans, credit cards charge interest. Interest rates can range from 3% - 22%. When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the larger the minimum payment will be. You can use credit card payoff calculators such as the one in the following link to determine how much to pay each month and how long it will take to pay off a credit card. credit card calculator When using the credit card calculator, be certain that the monthly charges (new spending or borrowing) are set to 0. Part 2 Exercises: Assume you have a balance of $1,900 on a credit card. Use the credit card payoff calculator to answer the following questions. 1. a. If the credit card has an annual interest rate of 13.6% and only the minimum monthly payment of $35 is made, how many months will it take to pay off the credit card? 2. b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $35? a. If the credit card has an annual interest rate of 13.6% and a monthly payment of $55 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $55? 3. a. If the credit card has an annual interest rate of 22% and only the minimum monthly payment of $45 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $45? 4. a. If the credit card has an annual interest rate of 22% and a monthly payment of $80 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1,900 if the monthly payment is $80? 5. What are some reasons the interest rates on credit cards vary? 6. What are your opinions on having and using credit cards your purchases