2. The Mortgage Crisis
The Time Value of Money
• A mortgage is a loan
from a bank.
• What happened in
2008 to spark the
mortgage crisis?
Click on this brief video intro.
http://www.youtube.com/watch?
v=77v_LEukbD0
3. Calculating a Mortgage
The Time Value of Money
• To calculate a
mortgage, you need
three pieces of data:
– Interest rate on the
loan
– The number of
payments (usually in
months)
– The amount of the loan
Rate 5%
Period (months) 360
Principal $100,000
Payment ($536.82)
4. Calculating a Mortgage
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You can use a
spreadsheet to
calculate a
mortgage payment.
Excel’s PMT
function can do this.
5. Equity
The Time Value of Money
• Real estate has often
been a good
investment because
you gain equity from
the increase in the
price of the house and
the amount of the loan
you’ve paid back.
6. Equity
The Time Value of Money
• But during the
mortgage crisis most
houses lost value and
certain types of loans
made it difficult to pay
the loan back.
• The result: negative
equity.
7. The Mortgage Crisis
The Time Value of Money
• As a result, many
mortgage holders
either stopped paying
their mortgages or
sold their homes at a
loss.
• And thus began the
mortgage crisis.