Kinh tế học - Chapter 15: The cost of home ownership

Chapter 15The Cost of Home OwnershipList the types of mortgages availableUtilize an amortization chart to compute monthly mortgage paymentsCalculate the total cost of interest over the life of a mortgageThe Cost of Home Ownership#15Learning Unit ObjectivesTypes of Mortgages and the Monthly Mortgage PaymentLU15.1Calculate and identify the interest and principal portion of each monthly paymentPrepare an amortization scheduleThe Cost of Home Ownership#15Learning Unit ObjectivesAmortization Schedule -- Breaking Down the Monthly PaymentLU15.2Table 15.1 - Amortization Chart (PARTIAL)(Mortgage principal and interest per $1,000)Computing the Monthly Payment for Principal and InterestGary bought a home for $200,000. He made a 20% down payment. The 9% mortgage is for 30 years (30 x 12 = 360 payments). What are Gary’s monthly payment andtotal cost of interest?Step 2. Look up the rate (9%) and the term (30 years) in the amortization chart. At the intersection is the table factor. ($8.05)Step 3. Multiply Step 1 by the factor in Step 2$160 x $8.05 = $1,288.00Step 1. Divide the amount of the mortgage by $1,000$160,000 = $160 $1,000Computing Monthly Payment by Using an Amortization ChartComputing the Monthly Payment for Principal and Interest$160,000 = 160 x $8.05 (table rate) = $1,288.00 $1,000 Total payments Mortgage Total interest $463,680 - $160,000 = $303,680 ($1,288.00 x 360)Monthly PaymentTable 15.2 - Effect of Interest Rates on Monthly Payments 9% 11% DifferenceMonthly payment $1,288.00 $1,524.80 $236.80 (160 x $8.05) (160 x $9.53)Total cost of interest $303,680 $388,828 $85,248 ($1,288.00 x 360) - $160,000 ($236.80 x 360) ($1,524.80 x 360) - $160,000 The Effect of Loan Types on Monthly PaymentsSuppose Gary chose a 15-year mortgage vs. a 30-year mortgage. What would be the effect? 15 Year 30 Year DifferenceMonthly Payment $1,624.00 $1,288.00 $336.00Total Interest $100,912 $303,680 ($202,768) ($1,624.00 x 180) -$140,000 ($1,288.00 x 360) - $160,000Hidden Cost in Purchasing a HomeClosing Costs - Cost associated with the passing of property from the seller to buyer. Include: lawyer’s fees, title search, points, etc. A point is a one-time charge that is a percent of the mortgage.Escrow Amount - A special interest bearing account in which the buyer is required to deposit 1/12 of the insurance cost and 1/12 of the real estate taxes each monthRepairs and Maintenance - The cost of keeping the property up. Includes: paint, wallpaper, landscaping, etc.Step 2. Calculate the amount used to reduce the principal: Principal reduction = Monthly payment - Interest (Step 1.) $1,288.00-$120.00 = $88.00Step 3. Calculate the new principal: Current principal - Reduction of principal (Step 2) = New Principal $160,000 - $88.00 = $159,912.00Step 1. Calculate the interest for a month (use current principal): Interest = Principal x Rate x Time $160,000 x .09 x 1/12 = $1,200.00Calculating Interest, Principal, and New Balance of Monthly PaymentStep 2. Principal reduction = Monthly payment - Interest (Step 1.) $1,288.00 - $1,199.34 = $88.66Step 3. Current Principal - Reduction of principal (Step 2) = New Principal $159,912.00 - $88.66 = $159,823.34Step 1. Interest = Principal x Rate x Time$159,912.00 x .09 x 1/12 = $1,199.34Calculating Interest, Principal, and New Balance of Monthly Payment2nd MonthTable 15.3 - Partial Amortization SchedulePayment Principal Principal Balance ofnumber (current) Interest reduction principal1 $160,000 $1.200.00 $88.00 $159,912.00 ($160,000 x .09 x 1/12) ($1,288.60 – 1,200) ($160,000 - $88.00)2 $159,912.00 $1,199.34 $88.66 $159,823.34 ($159,912 x .09 x 1/12) ($1,288 – 1,199.34) ($159,912 - $88.66)3 $159,823.34 $1,198.68 $89.32 $159,734.024 $159,734.02 $1,198.01 $89.99 $159,644.035 $159,644.03 $1,197.33 $90.67 $159,553.36