Lesson 16
Scenario:
Three friends are at the mall shopping for Joe’s birthday. Shaun, Rachel and Hayden all want to get him what he really wants, but there’s a snag in the plan when two of the three friends come up short on cash. After reading each of the friends’ stories below, decide who Shaun should loan his money to and why. Rachel is more trustworthy when it comes to borrowing money, according to past experiences. Shaun would be best off lending the money to her.
Imagine that you would like to purchase a $275,000 home. Using 20% as a down payment (or $55,000), determine the monthly mortgage payment for your dream home using the loan terms below.
A. 15-year mortgage term with a 3% interest rate
Total Amount Paid Over Loan Term: $279,685.56
Minimum Monthly Payment: $1,553.81
B. 20-year mortgage term with a 6% interest rate
Total Amount Paid Over Loan Term: $386,872.77
Minimum Monthly Payment: $1,611.97
C. 30-year mortgage term with a 5% interest rate
Total Amount Paid Over Loan Term: $434,825.51
Minimum Monthly Payment: $1,207.85
Which mortgage would you choose and why? A. The total is way lower than the other options.
Scenario 1:
You find a house that’s smaller than you want, but it’s in a good neighborhood. It’s pretty old and there’s lots of repair work needed. The house is $120,000 and you’ll put 20% down. The bank offers a 7% interest rate for a 15-year mortgage and you currently make $2,000 per month, with monthly expenses averaging $1,200. The repair work will cost $10,000.
Do you buy it or pass? Why? Pass. At my current salary, coupled with monthly expenses and the repair work, it would be difficult to meet the minimum monthly payment.
Scenario 2:
You have a job, but recently heard that your position may be cut. You can only make a down payment of 10% on your mortgage. Since you’re not putting 20% down, you have to pay Private Mortgage Insurance (PMI) that protects the bank in case you can’t make payments. The bank offers you a 6% interest rate on a 30-year mortgage of $450,000.
Do you buy it or pass? Why? Pass. If my position is unstable, and I can only make a 10% down payment, it would not be a good idea to buy a house.
Scenario 3:
You've always wanted to own a condo in the city and finally found one that matches your budget. You have good credit and will put 20% down on the $450,000 home price. The bank offers a 4% interest rate on a 15-year mortgage. You make $10,000 a month.
Do you buy it or pass? Why? Buy. I earn more than enough each month to pay off the minimum monthly payment and have enough left over for other things.
Three friends are at the mall shopping for Joe’s birthday. Shaun, Rachel and Hayden all want to get him what he really wants, but there’s a snag in the plan when two of the three friends come up short on cash. After reading each of the friends’ stories below, decide who Shaun should loan his money to and why. Rachel is more trustworthy when it comes to borrowing money, according to past experiences. Shaun would be best off lending the money to her.
Imagine that you would like to purchase a $275,000 home. Using 20% as a down payment (or $55,000), determine the monthly mortgage payment for your dream home using the loan terms below.
A. 15-year mortgage term with a 3% interest rate
Total Amount Paid Over Loan Term: $279,685.56
Minimum Monthly Payment: $1,553.81
B. 20-year mortgage term with a 6% interest rate
Total Amount Paid Over Loan Term: $386,872.77
Minimum Monthly Payment: $1,611.97
C. 30-year mortgage term with a 5% interest rate
Total Amount Paid Over Loan Term: $434,825.51
Minimum Monthly Payment: $1,207.85
Which mortgage would you choose and why? A. The total is way lower than the other options.
Scenario 1:
You find a house that’s smaller than you want, but it’s in a good neighborhood. It’s pretty old and there’s lots of repair work needed. The house is $120,000 and you’ll put 20% down. The bank offers a 7% interest rate for a 15-year mortgage and you currently make $2,000 per month, with monthly expenses averaging $1,200. The repair work will cost $10,000.
Do you buy it or pass? Why? Pass. At my current salary, coupled with monthly expenses and the repair work, it would be difficult to meet the minimum monthly payment.
Scenario 2:
You have a job, but recently heard that your position may be cut. You can only make a down payment of 10% on your mortgage. Since you’re not putting 20% down, you have to pay Private Mortgage Insurance (PMI) that protects the bank in case you can’t make payments. The bank offers you a 6% interest rate on a 30-year mortgage of $450,000.
Do you buy it or pass? Why? Pass. If my position is unstable, and I can only make a 10% down payment, it would not be a good idea to buy a house.
Scenario 3:
You've always wanted to own a condo in the city and finally found one that matches your budget. You have good credit and will put 20% down on the $450,000 home price. The bank offers a 4% interest rate on a 15-year mortgage. You make $10,000 a month.
Do you buy it or pass? Why? Buy. I earn more than enough each month to pay off the minimum monthly payment and have enough left over for other things.