11.5, Mortgages

• A Mortgage is a long term loan where property is pledged as security for the loan.
• If you fail to make your mortgage payments, the bank (or whoever owns the mortgage right now) can take your house away.
• Mortgages usually require down payments.
  • Some don't
  • 20% down is really a good thing.
• Mortgages are subject to federal and state laws, and local custom
• Also subject to the wills of the banks.
• There are many closing costs which we won't discuss
• But points are prepaid interest
• And 1 point is equal to 1% of the amount financed.
• When you have a loan, each month you must make a monthly payment.
• Do problem 14 page 702. Rework this with a 4% rate, rework with 20 years at 4%.
• The state can take your house away if you don't pay your taxes, and the bank can lose everything if you don't have insurance.
  • If you pay less than 20% down, you must
  • Escrow 1/12 of your property taxes each month
  • Escrow 1/12 of your home owners insuracne each month
  • Pay Private Mortgage Insurance (PMI) ~$50-$100 per month
• You may only qualify for a loan if
  • Total monthly payments are less than a percentage of your adjusted monthly income
  • subtract any monthly payments (with 10 or more months remaining) from the gross monthly income.
• Do number 17 page 703
• First Month's Payment
• Do number 21 page 703