Mortgages

• Mortgages are loans used to purchase houses, apartments, condos, ...
• They are for large amounts of money
• And for long terms (20-30 years)
• Laws, traditions and customs vary, this is again an overview.
• We will deal with conventional mortgages, where the terms are fixed at the time of the mortgage.
  • There are other types of mortgages, but they are more computationally difficult
  • We are shooting for basic understanding of the transaction.
• Down payment
  • You are usually expected to have a down payment.
  • 20% is really good, but sometimes you can get a loan for much less.
• Qualifying
  • Your adjusted monthly income is your monthly income minus any fixed monthly payments with more than 10 months remaining
    • Car payments
    • Child support
    • College loans
  • Banks modify this by a fixed amount (28%) to give the maximum monthly mortgage payment.
• Closing costs and points
  • Points are prepaid interest,
  • Points are 1% of the amount financed.
  • They can reduce interest rates
  • Or just be a charge to the bank.
  • There are other closing costs, but we will not discuss this now.
• Calculating monthly payments for mortgages is similar to installment loans,
  • 
  • Note, this is principal plus interest.
  • You can also use a formula, which is given in the book.
• Do 7,9,11, 15, 17, 19