1. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans BUYING A HOUSE A home can be a castle, a refuge from outside influences. Prepare for your purchase by investigating thoroughly. If I bought the house for $200,000, why did I end up paying the bank $350,000?

2. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Lesson Objective Students will learn the basics of home loan math.

3. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Points Loan points, also known as discount points, are 1% of the purchase price. They are an amount you can pay upfront in order to get a lower interest rate on the loan.

4. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Points For example: I can get a $200,000, 30 year loan at 5% interest or a $200,000, 30 year loan at 4% interest and 2 points. The only catch is that I would have to pay the value of the points in cash to the lender at the time I get the loan.

5. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Points For a $200,000, 30 year loan at 3% interest and 2 points That would be 1% for each point, or 2% of the $200,000. I would have to pay $4,000 in cash now, but I would save $40,184 over the life of the loan in exchange.

6. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Points To calculate the upfront cost of the points, multiply 1% times the number of points times the loan amount. $200,000 loan with 3 points = 1% x 3 x $200,000 = $6,000

7. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Practice 1.$516,245 loan with 4 points 2.$230,932 loan with 2 points 3.$103,928 loan with 1 point 4.$492,883 loan with 3 points

8. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Practice 1.$516,245 loan with 4 points 2.$230,932 loan with 2 points 3.$103,928 loan with 1 point 4.$492,883 loan with 3 points $20,649.80 $4,618.64 $1,039.28 $14,786.49

9. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans 15 year vs 30 year Another way to save money on a home loan is to hold the loan for less time.

10. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans 15 year vs 30 year Another way to save money on a home loan is to hold the loan for less time. A $195,450 loan with 6% interest has a 30 year monthly payment of $1,326.69 or it has a 15 year monthly payment of $1,778.68.

11. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans 15 year vs 30 year Another way to save money on a home loan is to hold the loan for less time. A $195,450 loan with 6% interest has a 30 year monthly payment of $1,326.69 or it has a 15 year monthly payment of $1,778.68. At first glance $1,778.68 a month looks like more money than $1,326.69. But calculate the overall cost of the loan and you will find that the 15 year loan is cheaper.

12. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans 15 year vs 30 year $1,326.69 per month x 360 months = Vs $1,778.68 per month x 180 months =

13. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans 15 year vs 30 year $1,326.69 per month x 360 months = $477,608.04 Vs $1,778.68 per month x 180 months = $320,162.40 This one is cheaper overall!

14. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Practice What is the overall cost of these loans: 1.$2,121.01per month for 30 years. 2.$2,018.55 per month for 15 years. 3.$1,807.42 per month for 30 years.

15. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Practice What is the overall cost of these loans: 1.$2,121.01per month for 30 years. 2.$2,018.55 per month for 15 years. 3.$1,807.42 per month for 30 years. $763,563.60 $363,339.00 $650,671.20

16. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Total Loan Amount One more thing to consider is how much your final loan amount will be at closing. To calculate that you need to know: 1.Purchase Price 2.Down Payment Amount 3.Closing Costs

17. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Total Loan Amount Purchase Price - Down Payment + Closing Costs = Total Loan Amount Purchase Price = $226,418 Down Payment = 6% Closing Costs = $1,649 $226,418 - (226,418 x.06) + $1,649 = $214,481.92

18. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Practice What is the total loan amount for this loan: Purchase Price = $226,418 Down Payment = 6% Closing Costs = $1,649 $226,418 – (226,418 x.06) + $1,649 = $214,481.92

19. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Review: 1.What does 1 point represent? 2.What would cost less? $1,646.98 a month for 30 years or $2,039.44 a month for 15 years?

20. Copyright 2014 © W. Seth Hunter ConsumerMath.org L12.3 Home Loans Review: 1.What does 1 point represent? 2.What would cost less? $1,646.98 a month for 30 years or $2,039.44 a month for 15 years? 1% of the loan; Paid in advance to get a lower interest rate on the loan. $1,646.98 x 360 = $592,912.80 $2,039.44 x 180 = $367,099.20