Math Money Management – Chapter 9 Lesson Plans
Section 9.4 – Monthly Payment
This is just like what we did in Section 7-4 Installation Loans – Allocation of Monthly Payment
Enduring Understandings: The student shall be able to:
- Compute the allocation of monthly payment toward principal, interest, and the new principal.
Standard: Calculates total interest paid on the loan.
Essential Questions: How do we find calculate how much of our monthly payment goes towards interest?
Warm up/Opener:
Skills
Activities:
New Vocabulary:
Principal: The amount of money on which interest is paid.
Interest = Principal X Rate X Time
BOOK: Most mortgage loans are repaid in equal monthly payments. Each payment includes an amount for payment of interest and an amount for payment of the principal of the loan. The amount of interest is calculated using the simple interest formula (I = P X R X T). The amount of principal that you owe decreases with each payment that you make. The chart shows the interest and principal paid in the first 4 months of an $80,000 mortgage loan:
Assessments:
CW: pg 273, # 4 - 6.
HW: pg. 273, # 9 – 21 odd (7)
$80,000 MORTGAGE LOAN AT 12.00% FOR 25 YEARSPayment Number / Monthly Payment / Amount of Interest / Amount of Principal / New Balance
$80,000.00
1 / $843.20 / $800.00 / $43.20 / $79,956.80
2 / $843.20 / $799.57 / $43.63 / $79,913.17
3 / $843.20 / $799.57 / $44.07 / $79,824.10
4 / $843.20 / $798.69 / $44.51 / $79,824.59
1) Calculate the interest on the last principal, in this case, $80,000:
I = P X R X T = $80,000 X 0.12 X 1/12 = $800,
so the first $800 of the payment goes to interest, and the rest goes to reducing the principal owed.
2) Calculate the amount of the payment going to reducing the principal owed by subtracting the interest from the payment:
$843.20 – $800 = $43.20
So, $43.20 of the payment goes to reducing the principal.
3) Calculate the amount of the new principal by subtracting the amount from the above step from the starting principal:
$80,000 – $43.20 = $79,956.80
Repeat