April 12, 2010Math 132: Foundations of Mathematics Amy Lewis Math Specialist IU1 Center for STEM Education.

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Presentation transcript:

April 12, 2010Math 132: Foundations of Mathematics Amy Lewis Math Specialist IU1 Center for STEM Education

April 12, 2010Math 132: Foundations of Mathematics 8.6 Amortization and the Cost of Home Ownership Understand mortgage options. Compute the monthly payment and interest costs for a mortgage. Prepare a partial loan amortization schedule. Compute payments and interest for other kinds of installment loans.

April 12, 2010Math 132: Foundations of Mathematics Loan Payment Formula for Installment Loans The regular payment amount, PMT, required to repay a loan of P dollars paid N times per year at an annual rate r is given by…

April 12, 2010Math 132: Foundations of Mathematics Loan Payment Formula for Installment Loans The price of a condo is $180,000. The bank requires a 5% down payment and one point at the time of closing. The cost of the condominium is financed with a 30-year fixed- rate mortgage at 8%. –Find the required down payment. –Find the amount of the mortgage. –How much must be paid for the one point at closing? –Find the monthly payment (excluding escrow). –Find the total cost of interest over 30 years.

April 12, 2010Math 132: Foundations of Mathematics Loan Amortization Schedules When a loan is paid off through a series of regular payments, it is said to be amortized, which literally means “killed off.” –With each payment, the interest portion decreases and the principal portion increases. –We will use the simple interest formula for 1/12 of the year.

April 12, 2010Math 132: Foundations of Mathematics Loan Amortization Schedules Prepare a loan amortization schedule for the first two months of the mortgage loan shown on the table at the bottom of page 495.

April 12, 2010Math 132: Foundations of Mathematics Comparing Car Loans You decide to take a $15,000 loan for a new car. Which loan do you want? –4-year loan at 8%? –6-year loan at 10%? Find the monthly payments and the total interest for both loans. Compare the monthly payments and total interest for the two loans.

April 12, 2010Math 132: Foundations of Mathematics Homework Work on your project! –Teachers Notes: How are you going to facilitate this lesson? What questions are you going to ask students? What instructional strategies are you going to use? Next Session: Friday, April 16