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Worksheet 3.6.3 Mortgage Lab
A4US

This worksheet refers this Desmos page 16 .

1.

Set P equal to $130,000. What number does the area of the blue region correspond to?

2.

Try moving the r and Y sliders around. Does the area of the blue region tend to stay the same, get larger, or get smaller as you make these changes?

3.

Given what you know about how loans work, why would this be the case?

4.

Suppose you have a budget for $700 a month for a home. Also suppose that you can get an interest rate of 4%, and that you are looking for a 30 year loan. Move the Principle P around to find the maximum house price you can afford. What is it? For this question, you will get full credit as long as you are close enough. In order to get full credit, you need to be within $1,000 of the correct answer. Make sure that you factor in that you will have to make escrow payments.

5.

In the situation from the last exercise, what percentage of your money goes towards interest over the life of the loan?

6.

Use the same information from Exercise 4, but change the length of the loan to 15 years. Now what is the maximum house price you can afford? What now is the percentage of your money going towards interest?

7.

Given your answer to the exercise above, how would you explain to someone that a 15-year loan has less than twice the monthly payments of a 30 year loan?

8.

Keeping everything else constant, change the annual percentage rate r. Explain how a rising interest rate could be considered to make all home buyers a little poorer.

9.

Imagine that you have $4,000 in credit card debt, and you’d like to pay it off in 10 years. Your credit card company charges 20% on your debt. How much per month will you have to pay? (For this problem and problem 7 ignore the escrow payments).

10.

Given the credit card situation from the last exercise, how much will you have to pay if you try to pay it off in 5 years?

11.

Given your answer to the last two exercises, explain to your friend why it is important to pay credit card debt off as soon as possible.