2.4 Mortgages

All right, now
we're going to discuss mortgages.

This is our last video for 2.4,

and you know you can
read these notes on your own.

But buying a house will most likely

be the most expensive thing you purchase
in your lifetime.

Whether it's in your--
you have already done it,

or if it's in your future, or you think
it's not in your future,

maybe learning about it will
solidify any decision you make.

One thing we need to talk about

is you have to have a down payment

when you buy a home,

and that can be anywhere between 5%

to 20% of the home's listing price.

Um, ideally it would be 20%,
but that is huge,

and that is really hard
to save that much money.

I'm speaking from personal experience,

so I was not able
to buy my home for 20% down.

So, you know,
I chose a much lower percentage,

and then you have
to pay mortgage insurance,

which that's annoying in itself,

but it gets you into a home quicker.

Um, so let's put this into action.

So example 6: Latisha and Jerome

would like to buy a $450,000 home
in Northeast Portland.

They plan
to put down a 20% down payment.

So they're
being the really wonderful consumer.

You know, they have their act together
to buy a home.

So it says how much
would they need for the down payment?

So once again, we're drilling home
this percentage idea.

So if I need to put twen--

or they need to put 20% down

for a $450,000 home,

it's going to be
what the home's listing price is...

times the 20%.

And when I do that in a calculator,

you get $90,000.

So right there you can see
how challenging that is.

I can't-- hopefully
in my lifetime maybe I'll get there,

but that's a lot.

So that's what
they're going to put down.

They have that already in the bank.

And then the next question says:
how much will they be financing?

And what I'm asking there is

how much do they actually have to
ask the lender to lend them.

Well, they don't need the $90,000
to be lent to them

because they already have it.

So their home price is $450,000,

but they already have the 90,000,

and so that's why
they're only going to finance $360,000.

All right, so let's put this
into action in another way.

So that's how much we have to finance

and our down payment.

But now we're going
to discuss mortgage payments, okay?

So we're going to talk about
how much could you afford monthly.

So then you would be
using this payment function, okay.

So after we subtract the down payment

from the cost of the house,
we are left with

how much we finance,
and that's how we can figure out

how much we can afford every month.

The most common loan terms
for a mortgage

are either 15 years,

or a 30 year loan.

The mortgage interest rate

is usually...

lower...

than credit cards
or other installment loans.

So, you know, right now they

are the lowest
I think they've ever been.

And so they're around like 3%, 3 to 4%.

But, you know, a long time ago
they were at 8%.

So you may either take an adjustable...

rate...

in which the interest rate
adjusts on the prevailing rates,

or a fixed rate loan...

in which the interest rate is guaranteed

over the life of the loan.

And again, it just depends
on what works best for you.

Um, in this class, we're going
to just focus on the fixed loans.

So our last example,
how much will the monthly payment be

on a $290,000 house

if you put 5% down

and you take a 30 year fixed loan

with 3.75% APR?

All right, ao key thing: how much

will the monthly payment be?

So I'm going to use my payment function.

My rate is 0.375...

and it's monthly,

I'm paying this every month
for 30 years.

Oh, I jumped the gun

and I didn't mean to,
I will be transparent,

although I'm glad I did it,
because this will happen to you.

I don't want to go ahead
and take out $290,000, right?

I have to actually figure out

how much I'm financing

by figuring out that 5%.

So 5%...

of $290,000 is...

Let's go ahead and bring up Sheets...

And I'm going to go here.

So let's see.

I need to do equals 290,000,

and I need to multiply it by 0.05...

And that gives me-- let me go ahead
and make this larger for you.

14,500.

But really, I'm going to go ahead
and erase this.

I'll come back to that in a second.

But really what I need to finance

is $290,000.

Take away what I do have
for my down payment.

So 290,000...

Oh, I forgot my equal sign.

Equals 290, one, two, three,
watch those zeros.

That's a very common thing
I mess up on, at least.

So really I'm financing...

$275,500.

Now I figure out
what my payment will be.

So I'm going to go here,
it's going to be equal payment,

my rates, which is locally 3.75%,

so 0.0.

Don't forget this guy,
very common mistake.

Divided by 12.

I'm going to have this for 30 years.

And really what I'm financing

is $275,000,

and 500,

and I want this loan to be zero

at the end of those 30 years.

So go here...

Equals payment

and my rate is 0.0375.

Divide that by 12.

I'm doing this for 12 months

for 30 years.

And remember, you find

how much the down payment is,

take that off of the listing price.

So really, you're only financing--

not only, but $275,500

and you want it to be 0.

So let's see.

So it looks like my monthly payment

will be $1,275.88.

So, I'm going to say that.

The monthly payment...

Again, please pay attention
to when you submit work

to answer in complete sentences.

Will be...

Now, for ease of this problem,

because we're not going
to get into the nuances,

this is accurate for this problem,

but if this was real life,

because you only put 5% down,
you would have

to pay mortgage insurance,
which is roughly like $100 a month.

So really, your monthly payment

would be about $1,375.88.

If you put 20% down, you don't have to

worry about that mortgage insurance.

Okay, I'll see you next time.