Download - 6-2 Total Housing Cost
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TOTAL HOUSING COSTUNIT 6, LESSON 2
ORCUTT ACADEMY HIGH SCHOOL
FINANCE & ACCOUNTING
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Calculating Mortgage Payment
Taxes: The Cost and the Benefit
Insurance & Maintenance
Calculating Total Housing Cost
PREVIEW
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TOTAL HOUSING COST
1. Mortgage Payment
2. Taxes
• The Cost and the Benefit
3. Insurance
4. Maintenance
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CALCULATING MORTGAGE PAYMENT
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CALCULATE MORTGAGE USING MULTIPLIER
Interest Rate 15-year mortgageMultipliers
30-year mortgage
4% 7.4 4.77
4.5% 7.65 5.07
5% 7.91 5.37
5.5% 8.17 5.68
6% 8.44 6.00
6.5% 8.71 6.32
7% 8.99 6.65
8% 9.56 7.34
9% 10.14 8.05
10% 10.75 8.78
Multiply the multiplier by your mortgage expressed in thousands of dollars (divided by 1000)
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EXAMPLE
Skye is taking out a $100,000 30-year mortgage at 6.5%. What will be her monthly mortgage payment?
The multiplier is 6.32, so
Monthly mortgage payment = 6.32 x 100,000/1,000
= 6.32 x 100
= $632
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CALCULATE MORTGAGE USING FORMULA
M = P [ i(1 + i)n ] / [ (1 + i)n - 1] M = The monthly payment
P = The principal, or the amount of money being borrowed
i = The interest for each compounding period, or the interest per month for a standard mortgage
n = The number of compounding periods, or the number of months for a standard mortgage
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TAXES: THE COST AND THE BENEFIT
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TAXES: THE COST• Homeowners pay property tax, which helps support local
governments.
• Based on the assessed value of your home
• Land + Improvements• May be higher or lower than the purchase price of the
home
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TAX RATES• Set by the county
• Usually about 1-2%
• Average property tax rates by state• Ex: Santa Barbara County
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CALCULATING TAX COSTS
The value of a home in Greenwood County is $285,000. Property taxes in Greenwood are 1.25%. What is the monthly property tax bill for the home?
Annual property tax bill: (285,000)(.0125) = $3562.50
Monthly property tax bill: (3562.50)/12 = $296.88
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TAXES: THE BENEFIT• You can deduct
• Interest paid to buy, build, or improve your home• Interest paid on a home equity loan• Property taxes
• You can deduct a second home
• Learn more about Tax Deductions on Mortgage Interest
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CALCULATING THE TAX BENEFIT OF OWNING
TAX BENEFIT =
(Mortgage Payment + Property Taxes) (Tax Bracket)
EXAMPLE
Tyler’s gross annual income is $83,000. His mortgage payment is $1,200/month and he pays $260/month in property taxes. What is his tax benefit from owning.
(1200+260)(.25) = $365
Tax Brackets 2012 (Estimated) Single (Est) Married Filing Jointly (Est) Head of Household 10% Bracket $0 – $8,700 $0 – $17,400 $0 – $12,400 15% Bracket $8,700 – $35,350 $17,400 – $70,700 $12,400 – $47,350 25% Bracket $35,350 – $85,650 $70,700 – $142,700 $47,350 – $122,300 28% Bracket $85,650 – $178,650 $142,700 – $217,450 $122,300 – $198,050 33% Bracket $178,650 – $388,350 $217,450 – $388,350 $198,050 – $388,350 35% Bracket $388,350+ $388,350+ $388,350+
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HOMEOWNER’S INSURANCE
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HOMEOWNER’S INSURANCE• On average, between $45 and $75/month
• Varies depending on
• Home’s value • Location • Homeowner’s demographics• Type and amount of insurance
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LEARN MORE…
Tips on homeowner’s insurance
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MAINTENANCE
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MAINTENANCE
About 1% of the home’s value on average
Example:
A home with a value of $475,000
Annual maintenance = (475,000)(.01) = $4,750
Monthly maintenance = 4,750/12 = $395.83
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MAINTENANCE CHECKLIST
National Healthy Homes Training Center Checklist
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TOTAL HOUSING COST
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TOTAL HOUSING COST
PUTTING THE PIECES TOGETHER!
Total Housing Cost =
(Mortgage Payment + Property Tax + Insurance + Maintenance) – (Tax Benefit)
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EXAMPLE 1Taylor is an actor living in Los Angeles, California where the property tax is 1.25%. Her gross annual income is $71,500 and the value of her property is $367,000. Her monthly mortgage payment is $1,200 and she pays $40/month for insurance. Estimate her total housing costs.
Total Housing Cost =
(Mortgage Payment + Property Taxes + Insurance + Maintenance) – (Tax Benefit)
Mortgage Payment = $1,200
Property Taxes = (367,000)(.0125)/12 = $382.29
Insurance = $40
Maintenance = (367,000)(.01)/12 = $305.83
Tax Benefit = (Mortgage Payment + Property Taxes)(Tax Bracket)
(1200 + 382.29)(.25) = 395. 57
Total Cost = 1200 + 382.29 + 40 + 305.83 - 395.57 = $1532.55
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1. To calculate the mortgage payment, what three pieces of information do you need to know?
2. How do taxes affect the overall total cost?
3. What components make up the total monthly housing cost?
ESSENTIAL QUESTIONS
WHAT ARE YOU LEARNING? WHY ARE YOU LEARNING IT? HOW WILL YOU USE IT?