How much interest will you pay on the following...
Transcript of How much interest will you pay on the following...
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How much interest will you pay on the following mortgage?◦ Selling Price: $235,000
◦ Down payment = $20,000
◦ Terms: 6.5% APR, 25 years
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How much interest will you pay on the following mortgage?◦ Selling Price: $235,000
◦ Down payment = $20,000
◦ Terms: 6.5% APR, 25 years
Mortgage Amount?
Monthly Payment?
Total Amount Paid?
Total Interest?
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Mortgage loans are paid with monthly payments.
Part of each payment goes toward interest, and the remainder goes toward decreasing the principal of the loan.
◦ Interest – What you pay the bank to borrow the $
◦ Principal of the loan – The amount you actually owe.
The initial principal of the loan is the amount of $ you borrowed.
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In the beginning, the part of your payment that goes to pay interest will be MUCH HIGHER than the part that goes toward principal.
With every payment◦ Amount going to interest will go DOWN
◦ Amount going to principal will go UP
◦ Why????
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Interest is calculated using the SIMPLE INTEREST formula.
◦ I = Principal x rate x time (in years)
◦ Interest equals a PERCENTAGE of the principal (amount you owe)
◦ 10% of a LARGE number > 10% of a SMALL number
◦ So as your principal decreases, the interest (a % of your principal) will also decrease, meaning more of your set monthly payment will go toward principal.
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Pay your home off early! $200,000 Mortgage @ 4.25% for 30 years
MonthlyPayment
TotalAmount Paid
TotalInterest Paid
$ Saved Time Saved
$984 354,153 154,153 -------- ---------
$1,066 329,281 129,281 24,872 4 yrs 3 mo
$1,084 324,921 124,921 29,232 5 years
$1,184 305,405 105,405 48,748 8 yrs 6 mo
$1,284 291,348 91,348 62,805 11 yrs 1 mo
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◦ “Payment to Principal”= the amount of your payment that goes toward (or “pays down”) your principal (the amount you owe).
◦ “New Principal” = the amount you owe (principal) after you make a payment.
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Review of Formulas:◦ I = Prt
◦ Payment to Principal = Monthly Payment – Interest
◦ New Principal = Prev. Balance – Payment to Principal
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Find Interest, Payment to Principal, New Principal for Payment #5
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Find Interest, Payment to Principal, New Principal for the first 2 Payments.
Loan: 135,000, 8.5%, 25 years, Mo. Pmt = $1,086.75
Payment Payment Amount
Interest Pmt to Principal
Balance(135,000)
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Find Interest, Payment to Principal, New Principal for the first 2 Payments.
Loan: 135,000, 8.5%, 25 years, Mo. Pmt = $1,086.75
Payment Payment Amount
Interest Pmt to Principal
Balance(135,000)
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Find Interest, Payment to Principal, New Principal for the first 2 Payments.
Loan: 62,000, 7%, 20 years, Mo. Pmt = $___________________
Payment Payment Amount
Interest Pmt to Principal
Balance(62,000)
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Pp. 353-354/ 12 – 18 all◦ Pay attention to what the question is asking for.
◦ You will not have to do all 3 steps on the first few problems… read the questions and see why