Time Frame: Approximately three weeks

 Название Time Frame: Approximately three weeks страница 10/23 Дата 28.11.2012 Размер 1.03 Mb. Тип Документы

Activity 1: Mortgage Loan Cost (GLEs: Grade 9: 4, 5, 15, 19; Grade 10: 2; Business: 14a, 14b, 14c, 14d, 14f)

Have students review how to calculate monthly payment, total amount repaid, total interest, and down payment. This is a comprehensive activity, tying together all of the concepts of calculating loans and repayment thereof from previous units in the context of mortgage loan costs. Use the accompanying table below to calculate monthly payment. Have students work a set of problems similar to the one below.

Example.

Ellen reached an agreement with a realtor to buy a house for \$138,500. She made a down payment of 10% and will finance the remainder. She could finance the mortgage in one of two ways: Homeworks Mortgage at 6.5% for 25 years or Friendly Homeloans at 5.5% for 20 years. Which mortgage results in a larger amount of interest paid? How much greater.

Solution.

Mortgage amount financed: \$138,500 * 90% = \$124,650

 Homeworks Mortgage: (\$124,650  \$1000) 6.75(number from table) = \$841.39 Monthly payment\$841.39  12  25 =\$252,417 Total Amount Repaid\$252,417 - \$124,650 =\$126,767 Total Interest Paid

 Friendly Homeloans: (\$124,500 \$1000)  6.88(number from table) = \$857.59 Monthly Payment\$856.56  12  20 = \$205,821.60 Total Amount Repaid\$205,574.40 - \$124,650 = \$81,171.60 Total Interest Paid

The most interest would be paid if she financed at Homeworks Mortgage. The difference is 5 years of mortgage loans and \$45,595.40.

Calculators should be used for this activity.

 Monthly Payment for a \$1000 Mortgage Loan Interest Rate Length of Loan in Years 10 15 20 25 30 5% 10.61 7.91 6.60 5.85 5.37 5.5% 10.85 8.17 6.88 6.14 5.68 6% 11.10 8.44 7.16 6.44 6.00 6.5% 11.35 8.71 7.46 6.75 6.32 7% 11.61 8.99 7.75 7.07 6.65 7.5% 11.87 9.27 8.06 7.39 6.99 8% 12.13 9.56 8.36 7.72 7.34 8.5% 12.40 9.85 8.68 8.05 7.69 9% 12.67 10.14 9.00 8.39 8.05 9.5% 12.94 10.44 9.32 8.74 8.41 10% 13.22 10.75 9.65 9.09 8.78

Activity 2: Closing Costs (GLEs: Grade 9: 4, 5, 15, 19; Grade 10: 2; Economics (Core Course: Free Enterprise): 1; Business: 4c, 4j, 11a, 14a, 14b, 14c, 14d, 14f, 15e, 19f)

This is a two part activity.

Part One. Have groups of three or four students research RESPA, Real Estate Settlement Procedures Act, and produce a PowerPoint Presentation of no less than five slides outlining the procedures of RESPA. Guiding questions for the slides may be as follows:

• When did RESPA become law?

• What are its purposes?

• What does RESPA cover, in general?

• What are the required disclosures to the home buyer?

• What does RESPA have to do with closing costs?

• What is an Initial Escrow Statement & what does it do for the home buyer?

• List & explain sections 8, 9 & 10 of RESPA.

• List & explain legal recourses of the disgruntled buyer.

• List the complaint contact address at HUD.

Information about RESPA and closing costs is available on the Internet at these and other web addresses:

http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm

http://www.joemetzler.com/closing.htm

Have the groups make an oral presentation of their slides to the class. Have students print a copy of the slides to include in their ongoing financial plan.

Part Two. Have students calculate closing costs for a typical home mortgage. Present the closing cost information in a table similar to the one below and have students calculate closing cost for several word problems using the same table.

 Closing Costs Table Appraisal fee \$350 Credit report \$75 Loan origination fee 2% of mortgage Abstract of title \$110 Attorney fee \$450 Service fee .5% of mortgage Documentation stamp .3% of mortgage Processing fee 1.05% of mortgage

At least one problem should address points. Make sure students understand points and their role in the closing process and what happens when they pay points to reduce a mortgage loan interest rate.

Points example.

Betty and Sam Cormic have agreed to purchase a \$128,930 home. They plan to make a 12% down payment. Homeworks Mortgage is willing to finance the mortgage at 6.5% for 30 years plus 2 points. How much cash will they need to secure the loan, including the down payment?

Solution.

Closing costs table from above is used.

\$128,930  .12 = \$15,471.60 Down Payment

\$128,930 - \$15,471.60 = \$113,458.40 Mortgage Loan Amount

 Closing Costs Table from above Appraisal fee \$350 Credit report \$75 Loan origination fee \$113,458.40  0 .02 = \$2,269.17 Abstract of title \$110 Attorney fee \$450 Service fee \$113,458.40  0 .005 = \$567.29 Documentation stamp \$113,458.40  0 .003 = \$340.38 Processing fee \$113,458.40 0 .0105 = \$1,191.31 Down Payment (from above) \$15,471.60 Points (1 point equals 1 percent of mortgage loan) \$113,458.40  0 .02 = \$2,269.17 TOTAL CASH NEEDED AT CLOSING: \$23,093.92

Activity 3: Real Estate Taxes (GLEs: Grade 9: 4, 5, 19; Grade 10: 2; Business: 14a, 14b, 14c, 14d, 14f)

Have students work word problems to calculate real estate taxes. See that they understand how to calculate the assessed value of a home and taxes presented in mills.

Example.

Jose and Trudy own a home that has a market value of \$348,000. Their parish rate of assessment for resident homeowners is 45%. The tax rate is 47.537 mills. How much should be placed in escrow each month to pay the annual taxes?

Solution.

\$348,000  0 .45 =\$156,600 Assessed value

\$156,600  1000  47.537 = \$7444.29 Annual real estate tax

\$7444.2  12 = \$620.36 Placed in escrow each month to pay annual taxes

Activity 4: Other Housing Costs (GLEs: Economics (Core Course: Free Enterprise): 1; Business: 4j, 14a, 14b, 14c, 14d, 14f)

Arrange students into groups of three or four each. Have each group produce a concept map similar to the one below for housing costs that are not rent/mortgage and taxes. Have each group present their map to the class with a master map kept on the board.

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After the map is complete, discuss with students the total cost of housing using these other expenses as the main topic. Help students understand the FHA recommendation that total housing costs should not exceed 35% of your monthly net pay.

Using the map on the board and student responses, apply costs to the expense categories on the board. Give mortgage cost and monthly taxes and have students work a total housing cost problem. Ask them what income level they would they have to maintain to afford the hypothetical model that has been produced on the board. Use the FHA recommendation.

A completed map may look like this.

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