Mortgages

• A home is probably the most expensive item that any of us will ever purchase.
• Generally, home loans are backed by the value of the class.
• If you don't pay for your house, the bank will declare you in default and begin foreclosure proceedings.
• They really don't want to do this so they have many rules.
  • You must have a down payment. This varies by institution.
  • You must have a minimum income
  • You must have a minimum disposable income.
  • You must maintain home owners insurance.
  • Generally if you pay less than 20% down, you must place your insurance and taxes in escrow with the bank.
  • Other rules as well.
• Introduce table 11.4 page 696
• Do problem 11 page 702.

• Mortgage institutions sometimes require points.
  • 1 point is 1% of the amount financed.
  • This is prepaid interest, or even just another fee
  • Points do NOT go towards principal
• There are many other fees as well, but we will not discuss these.
• Do problem 15, page 702

• Mortgage institutions wish to make sure that you can afford the monthly payments.
  • Your adjusted monthly income is your gross monthly income minus any fixed payments with more than 10 months remaining.
  • Generally your payments can't be more than 28% of your adjusted monthly income
  • The payment includes 1/12 of your taxes and home owners insurance.
• Do problem 17 page 703

• Like installment loans, each month you must pay off the interest due, and a portion of the principal.
• This is done via an amortization schedule.
• Do problem 19, page 703
• If time, do number 23, Page 704