How much interest will you pay on the following mortgage?◦ Selling Price: $235,000

◦ Down payment = $20,000

◦ Terms: 6.5% APR, 25 years

How much interest will you pay on the following mortgage?◦ Selling Price: $235,000

◦ Down payment = $20,000

◦ Terms: 6.5% APR, 25 years

Mortgage Amount?

Monthly Payment?

Total Amount Paid?

Total Interest?

Mortgage loans are paid with monthly payments.

Part of each payment goes toward interest, and the remainder goes toward decreasing the principal of the loan.

◦ Interest – What you pay the bank to borrow the $

◦ Principal of the loan – The amount you actually owe.

The initial principal of the loan is the amount of $ you borrowed.

In the beginning, the part of your payment that goes to pay interest will be MUCH HIGHER than the part that goes toward principal.

With every payment◦ Amount going to interest will go DOWN

◦ Amount going to principal will go UP

◦ Why????

Interest is calculated using the SIMPLE INTEREST formula.

◦ I = Principal x rate x time (in years)

◦ Interest equals a PERCENTAGE of the principal (amount you owe)

◦ 10% of a LARGE number > 10% of a SMALL number

◦ So as your principal decreases, the interest (a % of your principal) will also decrease, meaning more of your set monthly payment will go toward principal.

Pay your home off early! $200,000 Mortgage @ 4.25% for 30 years

MonthlyPayment

TotalAmount Paid

TotalInterest Paid

$ Saved Time Saved

$984 354,153 154,153 -------- ---------

$1,066 329,281 129,281 24,872 4 yrs 3 mo

$1,084 324,921 124,921 29,232 5 years

$1,184 305,405 105,405 48,748 8 yrs 6 mo

$1,284 291,348 91,348 62,805 11 yrs 1 mo

◦ “Payment to Principal”= the amount of your payment that goes toward (or “pays down”) your principal (the amount you owe).

◦ “New Principal” = the amount you owe (principal) after you make a payment.

Review of Formulas:◦ I = Prt

◦ Payment to Principal = Monthly Payment – Interest

◦ New Principal = Prev. Balance – Payment to Principal

Find Interest, Payment to Principal, New Principal for Payment #5

Find Interest, Payment to Principal, New Principal for the first 2 Payments.

Loan: 135,000, 8.5%, 25 years, Mo. Pmt = $1,086.75

Payment Payment Amount

Interest Pmt to Principal

Balance(135,000)

Find Interest, Payment to Principal, New Principal for the first 2 Payments.

Loan: 135,000, 8.5%, 25 years, Mo. Pmt = $1,086.75

Payment Payment Amount

Interest Pmt to Principal

Balance(135,000)

Find Interest, Payment to Principal, New Principal for the first 2 Payments.

Loan: 62,000, 7%, 20 years, Mo. Pmt = $___________________

Payment Payment Amount

Interest Pmt to Principal

Balance(62,000)

Pp. 353-354/ 12 – 18 all◦ Pay attention to what the question is asking for.

◦ You will not have to do all 3 steps on the first few problems… read the questions and see why