Activity: A Lesson on Discount Points

Jenia Walter, Asian Resources, Sacramento, CA

Background: In this particular one-day stand-alone model of delivery, workshop participants are typically members of a specific language group, usually immigrants or refugees who have been in the United States long enough to develop an interest in buying a home. Because levels of literacy, math skills, and formal education in the native language also vary widely depending on the group of learners, it can be helpful to do some reading/math activities early in the day to assess the group, and then tailor lessons to student needs. This lesson was developed for low intermediate–level English students with previous math education, although it can be adapted for different levels.

Objectives: Students will

• Develop an understanding of the concept of points
  and how they relate to mortgage loans
  
  
• Develop the ability to read real estate listings of current loan rates
  
  
• Review/solidify their understanding of interest rates,
  closing costs, and annual percentage rate (APR)
  
  
• Practice expressing fractions and decimals in English
  
  
• Practice pronouncing key vocabulary words
  
  
• Develop confidence in their ability to ask questions and gather
  information on mortgage loans, especially by telephone

Rationale: The concept of points has been chosen as a focus because

• Most students who attend the workshop have already developed
  a basic understanding of interest rates and down payments but
  find concepts such as points, balloon payments, or
  adjustable-rate loans more challenging
  
  
• Understanding points involves math concepts of decimals,
  fractions, and percents, which students may know but need
  practice in expressing/pronouncing in English
  
  
• Charts listing current loan rates can be used as a teaching tool:
  on their own, to review interest rates and mortgage payments,
  and to teach APR as a subsequent lesson
  
  
• The information on points can be combined with previously covered
  concepts to practice conversation on shopping for a loan
  
  
• The lesson familiarizes students with using the Fannie Mae Foundation
  ESL home-buying curriculum, Internet resources, and local newspapers
  for information and/or practice

Materials: Overhead projector (OHP); whiteboard; real estate section of local newspaper, with copies of the weekly listing of current loan rates; flashcards with examples of fractions and decimals; fraction/decimal worksheet (optional); Fannie Mae Foundation ESL student book, How to Buy a Home in the United States, and guide, Choosing the Mortgage That’s Right for You (available in English and Spanish); calculators; and telephones for dialogue practice.

Notes from earlier lessons: Students have reviewed numbers and measurement in vocabulary related to floor plans and square footage. Also, they have worked with percentages and vocabulary related to interest rates and down payments. And they were introduced to the concepts of fixed-rate versus adjustable-rate loans, closing costs, and APR.

Procedures

1. Ask students to list, in pairs or groups, mortgage loan terms covered thus far and put them on the board.

2. Hand out copies of (and display on OHP) a local newspaper’s real estate loan rate sheet, demonstrating (or asking a student to demonstrate) how to find this sheet in the real estate section of the local newspaper.

3. Let students decipher the columns on the sheet. Elicit a definition of points, referring students to glossaries in the Fannie Mae Foundation ESOL student guide and on the Web at www.homepath.com. Explore how points might be linked to interest rates.

4. Read together, or in small groups, the section on points in Choosing the Mortgage That’s Right for You (pp. 15–16). When assigning this reading, ask students to look for reasons why a buyer may or may not want to pay discount points. (For very beginning level English-speaking groups, reading can be done in their native language guide if needed; for other beginning English-speaking groups, the material may need to be presented by an interpreter or a more advanced student.)

5. Put a simple example on the OHP or on the board, assuming a $100,000 loan with 8 percent interest and 1 point/2 points/ 0.5 points. For this example, use the estimate that one point will lower the interest rate one-eighth of a percent. Discuss the concept as a group, letting students answer each other’s questions when possible; if necessary, use translations.

6. Next, use the same, then varied, loan amounts with rates and points that students choose from the rate sheet. Note fractional examples such as 1.875 points (1-7/8) and how the decimal form can be multiplied by the loan amount to calculate the total cost of points.

7. Check student comprehension with questions: Are points a part of your down payment? Do you pay points monthly? If students are still unsure, allow time for further explanation by other students or interpreters. Take time to remind students that real estate concepts are not easy for native speakers either; understanding the basic concepts is enough—a trusted agent or lender will take charge of complex calculations and details.

8. Using the rate sheet, note that some lenders may require points to be paid, while in other cases points are optional. (Required points are sometimes called an “origination fee.”)

9. Note that in the real world, each point is not always worth the same percentage of interest: the first point may lower the rate from 8 percent to 7.75 percent; the second point to 7.625 percent; the third point to 7.5 percent. Explain that this is “market driven.” (The banks tell the mortgage companies what percentages to use.) A Realtor or lender can help a buyer to calculate how the number of points offered might affect interest rates and payments over time.

10. Elicit/point out (from the reading) advantages: the buyer can sometimes negotiate for the seller to pay some of the points, points are tax deductible; and the disadvantage: the buyer needs more cash at closing time. Discuss when paying points, or extra points, may be beneficial to a buyer, and when not (especially, length of time the buyer plans to own the house; cash available).

11. Expressing fractions and decimals: When all students are comfortable with the concept, focus on correct expression of fractions and decimals in English. Use OHP or the board to model pronunciation of _, _, _, _, and then whole numbers with fractions: 1 _ (1-7/8), 2 _, etc.

12. Practice with flashcards showing further examples. If more time is available, have students use sets of flashcards
in small groups.

13. Move on to decimals (2.38, 1.875, 0.25): practice variations of 0.5, .5. Use flashcards as above.

14. If time permits, hand out worksheets with examples from daily life to build student confidence in expressing fractions and decimals (e.g., a pound and a half of apples, a three-and-a-half-year-old child, one and a quarter inches, three point five miles).

15. Pronunciation: Model major pronunciation issues that arise with the specific language group, choosing two or three useful points to practice. For example, emphasize the importance of pronouncing (not dropping) final consonants/clusters, especially on the telephone: discuss rules for pronouncing s versus es endings; or practice production of sounds such as th.

16. Return to the rate sheet and ask students to read (in pairs, if time permits) interest rates and points for different companies.

17. Fluency practice: If time permits, turn to the loan-shopping dialogue in the ESL book (p. 52). Model pronunciation with students’ repetition; then ask students to practice in pairs.

18. Discuss telephone behavior and communication strategies to ask for repetition, clarification, and slower speech. If time permits, focus on question structures: I’d like some information on…, What are…, How much…, How many…, Is there…, Are there…?

19. Next, turn to the mortgage rate chart oral practice on pp. 57–58 of the ESL book. Model the dialogue format, using student “lenders.” Ask students to practice in pairs. More advanced students can practice telephone skills sitting back to back, or develop an original dialogue using the local rate sheet. Emphasize fluency, at this point using humor and a playful tone to help students to feel free to try. (If time is limited, model the structure for this information gap exercise and encourage students to practice at home.)

Wrap-up: Ask pairs of students to demonstrate their dialogue for the class, using practice telephones and sitting out of view of one another if possible.

Review important concepts by asking the class questions: How does paying points change your interest rate? What percent of your loan is 1 point? 3 points? _ points? _ points? When do you pay for points? Do you think you would want to pay points on a house?

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