Fannie Mae Foundation: How to Buy a Home

Estimating your monthly mortgage payment
The chart on this page will give students a chance to estimate monthly payments for various loan amounts at different interest rates. Following
are some activities that could accompany this lesson.

1. Go over the instructions for reading the chart. Then, on the blackboard, put up a list of about six sets of loan amounts and interest rates. Divide the class into two groups. See which group can find the monthly payments faster for each of the six sets.

2. Point out the large difference in monthly payments depending on the interest rates. Ask students to ask their friends and family members who own houses what interest rate they pay. Discuss current interest rates and how they have changed over the past decade.

3. Bring in the newspaper. Help students find the interest rate chart in the paper. Discuss how to read the chart. Often interest rate charts are found in either the Saturday or Sunday editions, close to listings of homes for sale.

4. Using the newspaper or a home buyer’s guide, have students go on a “housing scavenger hunt.” Divide the students into two or three groups. Ask each group to find a) the least expensive house they can find and b) the most expensive house they can find. Compare the group’s results. What are the average prices
of listed homes?

Unit 1 : Lesson 4: How much can you afford to borrow?

Estimating your monthly mortgage payment

The amount of your monthly mortgage payment will depend on how much you borrow, the number of years you take to repay the loan, and the interest rate. The chart below gives you an estimate of your monthly payments for a standard 30-year fixed-rate mortgage. (You’ll learn more about what a “fixed-rate” mortgage means later.)

If you have an idea of what you might need to borrow and what the interest rate might be, you can use the chart to estimate your monthly mortgage payment. For example, let’s say that you want to purchase a house that costs $55,000. If you make a $5,000 down payment, you would need a $50,000 mortgage. Find $50,000 on the left-hand column of the chart. Let’s say you get an 8 percent interest rate. Run your finger over to the column marked 8 percent. As you can see, the monthly payment would be $367. You should keep in mind that the chart only includes the payments you make to the mortgage lender. It does not include other expenses you will have added to your monthly payment, such as property taxes, mortgage insurance, homeowner’s insurance, or condominium maintenance fees.

For a larger version of this table, click here.

You will notice that the monthly payment changes considerably depending on the interest rate (the amount a lender charges you for borrowing the money). Find the monthly payment for a $50,000 mortgage at 7 percent interest. It is $333. Now look at what happens when the interest rate goes up to 10 percent. The monthly payment would now be $439. Interest rates go up and down based on the U.S. economy. You can find a chart of current mortgage interest rates once a week in many newspapers. Check your local newspaper. What are housing prices and interest rates like in your area?

Previous Page | Next Page