Lesson 9

Part III (Introduction to Financial, continued)

In this part, you will be considering options in buying a house and the interest involved! The cost of a home varies greatly depending on where you live. In 2006, the cost of a 1,000 square foot home on the west side of Portland, Oregon was about $250,000.

1. Calculating a House Payment

Assume you are planning to buy a house. The final cost (including all closing costs) is $250,000. You locked into a 6.5% interest for 30 years compounded monthly and will put 0 down. What will be your monthly payment?

2. What are all the fields?

3. Experimenting with Interest using Amortization

When you buy a home you will get a mortgage payment! The mortgage payment will state how much of your money is going to pay interest and how much is going to pay principal.

This is important to know: what is principal?
Principal is the amount of money that you borrow. This initial principal is used to calculate how much of your first monthly payment will go to pay interest. The remaining amount of the monthly payment will go to pay part of your initial principal.

The slightly reduced principal will be used to calculate how much of your second payment will go to pay interest. What remains will pay off more of the principal amount!

How much of a payment is paying interest? How much is paying off principal?

4. How much are we really paying for the house?

If we pay the exact monthly payment on time for the life of the loan, how much are we paying for the house?

5. How can we reduce the amount of interest that we pay?

Many people will pay their monthly payment and a little extra with a note that the extra amount is to pay principal only. As your principal amount decreases, the amount of interest in your mortgage payment decreases and so the remaining amount paying off principal increases.

If we pay an extra $100 per month, how many payments will we need to make?

If we are able to pay an extra $100 a month, how much will we pay for the house?

6. How much interest is paid over a period of time?

Please note that loan types and savings accounts vary! For example, some loans have an early payment penalty and others do not. Some savings accounts require a minimum balance and others do not.

The ClassPad’s Financial application can help you understand loans and can give you a general idea of ways to pay a loan or earn interest. The bank or institution providing the saving plan or loan will provide you with exact values and also some type of contract. Read the contract carefully!

Part III


Practice Exercises

  1. You are considering buying a new car that is good on gas.
  2. One car under consideration costs $22,995.
  3. One option for financing is 5.9% APR for 60 months with 0 down.
  4. Open a new Compound Interest calculation page within the Financial application.
  5. Fill in the fields needed to calculate the monthly payment (PMT). Be sure to set FV (future value) to 0, P/Y to 12 and C/Y to 12.
  6. With the monthly payment showing, get a screen capture and paste it into your Lesson9 document (under a title of PART III).
  7. Next, open a new Amortization calculation page (your current compound interest data should carry over).
  8. Calculate the amount of interest you will have to pay in addition to the principal of $22,995.
  9. Get a screen capture with the interest summation showing. Add two blank spaces following the first screen capture and then paste this one.
  10. Another option for financing is 4.9% APR for 48 months with a $3,000 down payment.
  11. Open a new Compound Interest calculation page from the Calculations menu.
  12. Fill in the fields needed to calculate the monthly payment (PMT) for the second option. Be sure to set FV (future value) to 0, P/Y to 12 and C/Y to 12.
  13. Next, open a new Amortization calculation page (your current compound interest data should carry over).
  14. Calculate the amount of interest you will have to pay in addition to the principal of $19,995 ($22,995-$3,000).
  15. Get a screen capture with the interest summation for the second option showing. Add two blank spaces following the second screen capture and then paste this one.

Part IV

Reflection Exercises

You have just completed the ninth lesson in ClassPad 101. Remember to consider your options before taking out a loan! Please take a few moments to copy and paste the following three questions at the end of your Lesson9 document and answer them.

  1. Approximately how long did it take you to complete this lesson?
  2. Which activity did you enjoy the most?
  3. Did you find any part of this activity difficult to follow? If so, which part? Also, how did you overcome the difficulty?

Assessment 9: Introduction to Financial