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9-1 HOW DO WE FIND THE MORTGAGE LOAN AMOUNT & THE DOWN PAYMENT?. When you purchase a home, you will probably make a down payment and finance the remaining portion of the selling price with a mortgage loan . Generally, the down payment is between 10% and 40% of the selling price.
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9-1 HOW DO WE FIND THE MORTGAGE LOAN AMOUNT & THE DOWN PAYMENT? • When you purchase a home, you will probably make a down payment and finance the remaining portion of the selling price with a mortgage loan. • Generally, the down payment is between 10% and 40% of the selling price. • The mortgage loan is usually repaid with interest in equal monthly payments. • The mortgage gives the bank the right to sell the property if you fail to make the payments. Mortgage Loan Amount= Selling Price – Down Payment
LET’s PRACTICE Jessica and Kirk Cramer are considering the purchase of a new home for $140,000. A 15% down payment is required. What is the amount of the mortgage loan needed to finance the purchase? Find the down payment. $140,000 x 15% = $21,000 down payment Find the mortage loan amount. (Selling Price – Down Payment) $140,000 - $21,000 = $119,000 mortgage loan amount
9-2 HOW DO WE CALCULATE THE MONTHLY PAYMENT & TOTAL INTEREST? • Banks that make mortgage loans charge interest for the use of their money. • The interest rate will vary from bank to bank, so it pays to shop around. • If you know the annual interest rate, the amount of the loan, and the length of the loan, you can use a table to find the monthly payment, the total amount paid, and the total interest charged. Monthly Payment= Amount of Mortgage/$1000 x Monthly Payment for a $1000 Loan Amount Paid= Monthly Payment x Number of Payments Total Interest Charged= Amount Paid – Amount of Mortgage
LET’s PRACTICE Carol and Adam Burke have applied for an $80,000 mortgage loan at an annual interest rate of 12.00%. The loan is for a period of 30 years and will be paid in equal monthly payments that include interest. What is the total amount of interest charged? Find the monthly payment. $80,000/$1000 x 10.29 = $823.20 monthly pay. Find the amount paid. $823.20 x 360 = $296,352 amount paid Find the total interest charged. $296,352 - $80,000 = $216,352 total interest
9-3 HOW DO WE CALCULATE CLOSING COSTS? • At the time you sign the documents transferring ownership of your new home, you must pay closing costs that the bank charges. • The closing costs may include fees for lawyers, credit checks and title searches, taxes, and the preparation of the documents. • Some banks charge a percent of the amount of the loan. Other banks charge itemized fees at the closing. Closing Costs= Sum of Bank Fees
LET’s PRACTICE Marla and Glen Carelone have been granted an $80,000 mortgage loan. When they sign the papers to purchase their new home, the will have to pay closing costs shown. What is the total of the closing cost? Find the sum of the bank fees. Credit report………………………………………$45 Loan origination $80,000 x 2%...............................$1,600 Abstract of title………………................................$120 Attorney Fee………………….................................$250 Documentation stamp: $80,000 x 0.3%................$240 Processing fee: $80,000 x 1.10%.............................$880 Total Closing Costs......................$3,135
