To use the banker’s rule to determine the amount of money

a person may borrow

you may borrow

up to 2.5 times

your annual

income

annual income

X 2.5

amount you may borrow

To find the minimum annual income required for a particular

mortgage

cost of house ÷ 2.5 = minimum

(mortgage amount) annual income

$225,000$225,000 ÷ 2.5 =÷ 2.5 =

$90,000$90,000

You must make

this amount to

buy this house

Computing the Down Payment

• To find the down payment, multiply the cost of the home by the rate of the down payment.

$159,900 x .20

__________$31,980.00 (down payment)

• To find how much remains to be financed, subtract the down payment from the cost of the house?

$159,900.00- $31,980.00

__________________

$127,920.00 (to be financed)

Mortgage Lenders: DIY or hire a Broker?

Fixed-Rate Mortgage

• Description: Interest rate is fixed for an amount of time (years) 10, 15, 20, 30, or even 40 or 50 years.

• Pros: You know what your monthly payments will be. You can refinance if rates drop significantly.

• Cons: If rates go down, you'll still be paying the initial rate unless you refinance.

ARMs (Adjustable-Rate Mortgages)

Mortgage Rates

National Average

Current Last Week

30 year fixed

3.78% 3.33%

15 year fixed

2.93% 2.54%