Name:______Block:______Date:______
Contemporary Mathematics
11.5 Notes
Buying a House with Mortgage
Homeowner’s Mortgage-
The two types of loans are ______& ______.
The major difference between the two is that the ______for a
______is ______for the duration of the loan, whereas the
______for the ______may
______every period, as specified in the loan.
Down Payments
-Depends on who is lending, how old property is, and if it is easy to borrow at that time
-
-Larger amounts required when money is tight
-Older homes require larger down payments, newer homes are less
-May be required to pay one or more ______for their loan at time of closing (this is the ______step in the sale process)
-One point amounts to ______of mortgage money ( this is the amount being borrowed)
- by charging points, banks ______rate of interest on mortgage, reducing size of monthly payments and enabling more people to purchase houses.
Example 1: Conventional Loans
The Benton’s have decided to purchase a duplex. A selling price of $120,000 was agreed upon. Their bank requires a 20% down payment and a payment of 1 point at closing.
A.Determine the Benton’s down payment.
B.With a 20% down payment, determine the Benton’s mortgage.
C.What is the cost of the point paid by the Benton’s on their mortgage?
Example 2: Calculating Down Payment and Points
Chris and Daryl Cahill want to purchase a house selling for $125,000. Their bank requires a 15% down payment and a payment of 1 point at the time of closing.
- Determine the down payment.
- With 15% down, determine the mortgage.
- What is the cost of the point paid by the Cahills on their mortgage?
Adjusted monthly income-
Benefits of Home Ownership
- Mortgage payments rather then pay rent
-This builds ______.
- Interest and real estate taxes are deductible on income tax.
- Can expect home to increase in value
- Wise financial investment
Example 3: Qualifying for a Mortgage
Suppose the Benton’s gross monthly income is $3600 and that they have 14 payments of $160 per month on their car loan and 11 remaining payments of $45 per month on a loan used to purchase a computer system. The taxes on the duplex they want to purchase is $105 per month and the insurance is $42 per month.
A.What maximum monthly payment does the loan officer think the Benton’s can afford?
B.The Benton’s want a 25 year $96,640 mortgage. If the interest rate is 7.5%, determine whether the Benton’s qualify for the mortgage.
Example 4: Qualifying for a Mortgage
Suppose the Cahill’s (example 2) gross monthly income is $4200 and that they have 15 remaining payments of $185 per month on their car loan and 14 remaining payments of $35 per month on a loan used to purchase a new washer and dryer. The taxes on the house they want to purchase are $135 per month and the insurance is $38 per month.
- What maximum monthly payment does the bank’s loan officer think the Cahills can afford?
- The Cahills want a 30-year $106,250 mortgage. If the interest rate is 6.5%, determine whether the Cahills qualify for the mortgage.
Example 5: The Total Cost of a House
Using examples 2 and 4, (Cahills), they obtained a house selling for $125,000. They made a 15% down payment and obtained a 30-year conventional mortgage for $106,250 at 6.5%. They also paid 1 point at closing. Their monthly mortgage payment of principal and interest is $671.50.
A. Determine the amount including principal, interest, down payment, and point.
B. How much of the cost will be interest?
C. How much of the first payment on mortgage is applied to principal?
Adjustable Rate Mortgages
The monthly mortgage payment rate remains the same for a 1, 2, or 5-year period, even though the interest rate of a mortgage may change.
The monthly payment is readjusted after the time period so the loan will be paid off in the set amount of time or the bank may extend the time period of the loan beyond the predetermined years to make the payment affordable.
Other Types of Mortgages
FHA Mortgage
VA Mortgage
Graduated Payment Mortgage
Balloon-Payment Mortgage
Home Equity Loans