- A Mortgage is a long term loan where the property is pledged as security for payment of the loan.
- When one obtains a mortgage, one usually pays closing costs, or fees to the lending institution
- Paperwork fee
- Filing Fee
- Application Fee
- Title Search
- Lawyers fees
- Many others.
- Depending on the location, this can be thousands of dollars.
- One can also pay points.
- A point is 1% of the amount borrowed.
- Banks sometimes charge multiple points.
- Sometimes points reduce the interest rate.
- It is also normal to have a required down payment
- This is a percentage of the purchase price of the home
- This can be as little as 2.5%
- Traditional loans start at 20%, if you have less than this, you usually have to pay additional fees.
- Example 1
(Number 12, page 644)
Price of the house 175,000
Down Payment 20%
Down = 175,000 x .2 = 35,000
Amount Financed = Cost of House - Down Payment
= 175,000 - 35,000 = 140,000
If the bank wants 1.5 points, what is the cost of the points?
140,000 x .015 = 2,1000
- We use the chart on 638 to determine monthly payments.
- Example 1 continued
Mortgage rate 5.5%
Period of the loan 30 years
Monthly payment (per $1000) (look in the chart)
5.68
$1000 of loan
140,000/1000 = 140
Monthly payment = 140 x 5.68 = $795.20
- Banks limit the amount that you can borrow.
- Start with your gross monthly income. (before taxes)
- Subtract all of your regular payments, with more than 10 months remaining.
- Multiply the remaining amount by .28
- Taxes plus insurance plus payment must be less than this amount.
Example 2, number 18, page 644
Gross Monthly Income $4100
Loan 1, $505, 18 months
Loan 2, $200, 3 months.
Adjusted Gross = $4100 - $505 = $3595
28% of AG = 3595 x .28 = $1006.60
Price $275,000
Period 20
Rate 9%
Payment (From chart) $9/thousand
Monthly Payment 9 x 275 = $2,475
Monthly plus taxes and insurance = $2,475 + $425 = $2,900
They do not qualify for the loan.
- If you have a loan, you can determine the amount paid on interest or principle on the first payment, (i = prt, t = 1 month)