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5/8 FA 7.3 Auto Loans and Mortgages

Last updated over 2 years ago
44 questions
Objectives
Objectives & Standards
Math Objectives
  • Evaluate expressions
Common Core Math Standards
  • Link to all CCSS Math
  • CCSS.HSM
Personal Finance Objectives
  • Explain the difference between secured and unsecured loans
  • Compare how auto loans and mortgages are similar and different
  • Demonstrate how interest rate, term, and down payment affect the monthly payments of a loan
  • Describe the steps that a borrower should take if they fall behind on their loan payments
National Standards for Personal Financial Education
Managing Credit
  • 2a: Give examples of unsecured and secured loans
  • 2b: Explain why lenders charge lower interest rates on secured loans than on unsecured loans
  • 2c: Compare what happens if a borrower fails to make required payments on a secured loan, such as an auto loan or a home mortgage, versus failing to pay a credit card account
  • 3c: Compare monthly mortgage payments for loans that differ in repayment period, amount borrowed, and interest rate
  • 6a:  Identify examples of loans that may require down payments
  • 6c: For a specified loan amount, compare the monthly loan payment with a 10% down payment versus a 20% down payment
Discussion Prompt: Your Dream Home/Car
Consider your life after graduation.
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Describe your dream house and dream car.

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Do you expect to own a home and a car immediately after you graduate?

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List all the factors that affect your ability to afford these dream items.

Learn It
VIDEO: All About Car Loans
Buying a car involves making a lot of decisions beyond what car you want. How much can you afford? What type of financing is best for you? Where is the best place to get a loan? Watch the video in order to answer these questions.
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The larger your down payment amount, the _______ your monthly payments.
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The higher your credit score is, the your APR.

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You should shop around for a loan pre-approval from a direct lender before going to the dealer because

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The shorter your term length, the _______ your monthly payments, and the_______ the total interest you will pay.
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What reasons would you choose to lease a car vs finance?

COMPARE: Auto Loans
Molly is celebrating her amazing new career and wants to upgrade her junky old car for a shiny new Volkswagen Jetta. She heads to Volkswagen’s website and sees the following financing deals:



Note: For this activity, assume Molly’s going to pay the exact MSRP of $24,790. This is most likely NOT true, but we’ll use it for simplicity.
Part I: 0% APR sounds PERFECT!
Answer the following questions using the details from the 0% APR offer above. Please round all answers to the nearest dollar.
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Molly has a $2500 down payment saved for this purchase, and the dealer’s $1500 Cash Allowance will come straight off her total. How much loan does Molly need?

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How much will Molly’s monthly payment be if she makes 36 monthly payments?

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How much total interest will Molly pay using this plan?

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When Molly adds all her payments, how much will the car cost her?

Part II: Maybe the 1.9% is more manageable?
Oh, boy! Look at that monthly payment from Question 2 above! Molly cannot afford the monthly payment using the 0% financing. She opens up Bankrate’s Loan Calculator to see how much she’d pay with the other financing option.
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Remember that Molly has a $2500 down payment saved for this purchase. The dealer will take the $500 Cash Allowance straight off her total. How much loan does Molly need?

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Using the Loan Calculator and the 1.9% APR offer, how much will Molly’s monthly payment be?

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How much total interest will Molly pay using this plan?

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When Molly adds all her payments, how much will the car cost her using this plan?

Part III: Reading the Fine Print
Excited to buy her dream car, Molly rushes into her local Volkswagen dealership. Molly picks out a car, sits down at the financing desk, and hears the following:
“Well, we ran your credit history. You’ve got a really thin file -- just a year’s worth of student loan payments. The deal you saw was for ‘well qualified buyers.’ The best deal we can offer you is 6.6% for 60 months. A little more bad news -- the cash allowance is also based on credit history, so you don’t qualify for $500. That said, you’re excited about a Volkswagen, and I want to see you driving one, so I can do $400 for you!”
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Molly still has a $2500 down payment. How much loan does Molly need?

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How much will Molly’s monthly payment be using the Bankrate calculator?

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How much total interest will Molly pay using this plan?

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When Molly adds all her payments, how much will the car cost her?

Part IV: In Summary
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What valuable lessons did Molly learn about auto financing?

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Molly desperately wants a Volkswagen Jetta, and this new monthly payment is pretty high again. What suggestions do you have for making her dream become reality?

VIDEO: Mortgage Basics
Just like purchasing a car, home purchases usually involve taking out a loan.  Do these loans operate the same way?  We’ll get to that next!  Let’s start with learning how mortgages work.  Watch the video on mortgage basics, then use it to answer the questions.
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If you buy a $180,000 house and you take out a $150,000 mortgage, how much was your down payment?

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If you take a 30 year mortgage, what reason would you have to pay it off sooner than the full 30 year term?

EXPLORE: What Home Value Can You Afford?
Before you can start looking for homes and obtaining a mortgage, you first need to have a general understanding of how much you can afford.  Let’s find a home based on income level, credit history, and down payment options.
  1. Let’s assume that you make $70,000 per year, have $450 in other monthly debt and have a good credit score.  Use Nerdwallet’s How Much House Can I Afford? Calculator.  On the calculator, verify that Credit Score is set to GOOD, then click on the Income and debts box below to enter your annual income ($70,000) and Minimum monthly debt ($450)

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What home value can you afford?

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How much does the home value that you can afford change if you have a POOR credit score? What about an EXCELLENT credit score?

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Reset your credit score to GOOD.  Many home buyers don’t have a full 20% available as a down payment.  Under Loan Details, there is an option to set a Down Payment amount.   Change the down payment amount to $7,500. What is your new suggested affordable home value?

Now let’s use Zillow’s Real Estate & Homes For Sale to find a home.  

Choose any location that you want by typing in the city name or zip code
  • Click the Price button to set your Max home value to what you wrote down in question 25.
  • You may optionally adjust the bedroom/bathroom button based on your preferences.
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What changes did you have to make to the house search criteria to find a home that you could afford?

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List at least 3 steps that you can take to increase the value of the home that you can afford.

ARTICLE: Top Reasons a Mortgage Differs from Other Loans
Mortgages and Auto Loans are both types of secured loans.  This means that when you take your loan, you agree that your home or vehicle can be taken from you if you fail to pay the loan back.  Read the sections of the article titled “Buying a Vehicle” and “The mortgage application process”, then answer the questions.
For 30-32, fill in “Auto Loan” in one blank and “Mortgage” in the other so that the statement is true.
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A(n) _______ ________ requires a more extensive look at your credit history, usually from all three credit bureaus while a(n) _______ ________ will typically only look at one.
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A(n)_______ ________ has a shorter term, usually 3, 5, or 7 years while a(n) _______ ________ has longer terms, usually 15 or 30 years.
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While lenders will usually reject a(n)_______ ______ application if it includes a poor credit history, they are more likely to approve a(n)_______ ____ to help increase sales.
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How do lenders alter the loan terms of a loan for those with poor credit to make up for the added risk?

ARTICLE: What Can I Do If I Am Struggling With Secured Debt?
Auto loans and mortgages are both major purchases and typically involve large, long term loans. What happens if you’re unable to pay back this debt?  Read the sections titled Speak to Your Lender and If you Face Legal Action from the article. Then, answer the questions.
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According to the article, one of the first steps that you should take when struggling to pay secured debt is contact the lender.  What steps can you agree to with your lender to make your payments easier to manage?

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What are the potential consequences of not paying your loan?

ACTIVITY: MATH: Auto and Mortgage Monthly Payments
We’ve learned that auto loans and mortgages operate in similar ways:  You make a down payment, take out a loan for the rest of the purchase and are given a term to pay back the loan along with an interest rate.  Once the lender knows all of this information, they can set a monthly payment.  Complete the activity to explore how lenders calculate a monthly payment based on the particular criteria for your loan.

Finding the right car and home is exciting, but an important part of making that final decision is being sure you can afford this often expensive purchase. If you don’t have enough money saved to pay the full price upfront, you may choose to take out a loan. In this activity, you will practice calculating monthly costs of auto and mortgage loan payments, taking into account how much money you need to borrow, how long the loan is, and annual interest rates.
Part I: Interactive Examples
These two videos provide information on how to graph comparing costs to fit within a budget. Follow your teacher’s directions on which video(s) you should watch or skip ahead to the next section.
Math: Auto and Mortgage Monthly Payments LEARN IT
https://edpuzzle.com/media/5e6feb52c859873ed4f61e11
Math: Auto and Mortgage Monthly Payments PRACTICE IT
https://edpuzzle.com/media/5e6fef7cb069603ecdc55080
MATH: Auto and Mortgage Monthly Payments
Part II: Practice Problems
Complete the following practice problems by using the formula below and showing your work in the space provided. Then, write your final solution in the answer boxes.

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Question 1 (continued from PRACTICE IT video)
Marisa wants to buy a home in Atlanta with a 30-year mortgage that has an annual interest rate of 4.9%. The house she wants is $250,000 and she will make a $55,000 down payment and borrow the remainder. What is Marisa’s monthly mortgage payment to the nearest dollar?

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Question 2
Makenzie is looking to purchase a used Jeep Wrangler that costs $21,000. She will make a $4,000 down payment and borrow the remaining with a 60-month loan that has an annual interest rate of 5.3%. Determine Makenzie’s monthly car payment to the nearest dollar amount.

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Question 3
Nichole wants to buy a Dodge Charger that costs $29,500. She will make a $6,000 down payment and borrow the remaining with a 72-month loan that has an annual interest rate of 4.8%. Determine Nichole’s monthly car payment to the nearest dollar amount.

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Question 4
Jadyn is looking to purchase a home for $182,000 and will make a $40,000 down payment in order to borrow the remainder. Jadyn’s bank is offering a monthly interest rate of .351% for a 15-year mortgage. What is Jadyn’s monthly mortgage payment to the nearest dollar?
HINT: The interest rate provided in this question is monthly.

Part III: Reflection
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Go back to Question 1 and compare your answer to the solution from the PRACTICE IT video. Describe the difference a larger down payment makes.

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Go back to Question 4. How did you adjust the equation when given a monthly interest rate, instead of an annual one? If you hadn’t made that adjustment, how would your answer change?

Exit Ticket
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  1. What is considered to be a good first step when you are struggling to pay your secured loans?
  2. Call your lender to work out a payment plan
  3. Catch up by using your credit card
  4. Seek aTake a short term loan from a payday lending service
  5. Stop payments on other debt because secured debt is more important

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The End!