Lesson 3 discusses important concepts related to mortgages, including terms like principal, interest, monthly payments, amortization period, and owner's equity. It focuses on the key formulas used to calculate a monthly mortgage payment, interest payment, principal payment, new unpaid balance, and new owner's equity. Mortgages involve borrowing principal from a bank and making regular monthly payments that go toward both interest and chipping away at the principal over an amortization period, typically 30 years.
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1. Lesson 3: Mortgages
I. Read through the lesson.
II. Some important things to focus on:
a. Terms:
i. Principal: the amount borrowed from the bank
ii. Interest: money you pay to borrow the principal
from the bank.
iii. Monthly/Mortgage Payment: A payment made
once a month to the bank. Some of this payment
goes towards the principal; some of it goes
towards the interest. You will pay the same
amount each month for the rest of your
amortization period.
iv. Amortization Period: The # of years it will take to
pay back the bank the principal and interest $
v. Unpaid Balance: The amount of principal that
has not been paid off yet.
vi. Ownerβs equity: How much of the principal has
been paid off.
b. Formulas:
i. Monthly Payment: Use table on page 41.
2. 1. Also: monthly payment = principal payment
+ interest payment
ii. Interest payment= (Unpaid balance X interest
rate)Γ·12
1. Also: interest payment = monthly payment
β principal payment
iii. Principal payment= monthly payment β interest
payment
iv. Unpaid Balancenew = Unpaid Balanceold β principal
payment
v. Ownerβs Equitynew = Ownerβs Equityold + principal
payment