Extending Chapter 7: Comparing Mortgage Terms

What You'll Do and Learn

• You'll extend your understanding of mortgage financing by comparing the interest cost of loans with different repayment terms.
• You'll learn how to use Standard & Poor's online calculators to help you make financial decisions.

Introduction

In this activity you will learn about using an online calculator to compare costs for loans with different repayment terms.

Chapter 7 Notes

Chapter 7 helped you learn about evaluating alternatives for housing. Many people rent a home or apartment for several years while saving money for a down payment to purchase a home. A mortgage is a special type of installment loan that is secured, or guaranteed, by the value of the property that you are buying. Because the loan is secured, interest rates on home mortgages are very low compared to rates on other types of debt.

The interest rate on your mortgage will depend on several factors including the amount of your down payment, your income and financial situation, and your credit rating. One of the most important factors mortgage lenders use in determining your credit rating is your past history of making rent and other payments on time. Lenders generally will look at payments you have made over the previous two years.

Interest rates are only one factor you should consider in evaluating a mortgage. Two other variables that can make a big difference in how much you will pay in interest are the term of the loan and the frequency of payments. Most mortgages are repaid over 30 years; however, by repaying your mortgage in 20 or even 15 years, you may be able to reduce your total interest costs by more than 50 percent. Making payments every two weeks instead of once a month can also reduce the amount you will pay in interest.

Site Notes

Standard & Poor's offers several tools that can help you make decisions about managing your money. Among these is an online calculator that you can use to calculate the total amount of interest that you will pay on a mortgage.

Let Me Try

Go to the S&P site at and then print the Worksheet activity.

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