4.04 Auto Loans and Mortgages

Instructions

PROMPT: Household Debt & Credit Report 📷1 min
The Federal Reserve Bank of New York maintains these graphs every quarter to depict total household debt in the US. Review the first two graphs (skip the third on delinquency) using the link above and use them to answer the question that follows.

1

Based on this data, what observations can you make about household debt in the US?

FINCAP FRIDAY: What’s Buy Now, Pay Later? 📷9 min
In recent years, a different type of installment loan has become popular on online shopping checkout screens and even in some stores. It’s commonly referred to as “Buy now, pay later.”

1

If Buy Now, Pay Later loans are just breaking your payment into 4 equal parts, how could this deal possibly become problematic to the borrower?

1

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
The interest portion will grow
The interest portion will shrink
The interest portion will stay the same
The interest portion will sometimes grow and sometimes shrink

1

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?
Substantially less than $396
Slightly less than $396
Exactly $396
Slightly more than $396

1

You’re debating whether to buy a trendy fall jacket that costs a whopping $200! You have it sitting in your online cart, and you see there’s a “Buy Now, Pay Later” option available for the jacket. Which best describes an example of how that would work?
You pay the full $200 now, but they wait a month to send it to you, giving you the chance to cancel, penalty free, if you change your mind
You pay $100 right now, you receive the jacket, and you owe $100 more a year later on the anniversary of your purchase date
They ship you the jacket now, and you owe four $50 payments, once every 2 weeks, until the jacket is paid in full
You reserve the jacket now, you pay as much or as little as you want in each payment, and when you eventually get to $200, they send you the jacket

EDPUZZLE: All About Car Loans 📷11 min
A car, just like a mortgage, is a secured loan. That means if you fail to make payments, the lender can repossess the property, leaving you with a horrible credit score — and no car! For that reason, it’s especially important that you understand how auto loans work. Watch this video and follow your teacher's directions to answer the questions either in your student activity packet or within the EdPuzzle itself.

2

1

INTERACTIVE: Auto Loan Calculator 📷7 min
Auto loans are amortized installment loans, so once the terms of your loan are set, your payments should stay the same month after month. Assume you are taking a $20,000 car loan, for a term of 48 months, with an interest rate of 4%. Use this calculator to answer the following questions.

1

What is your estimated monthly payment?_______ (screen shot your calculator)

8

2

What are two reasons someone might purposely choose a HIGHER monthly payment?

1

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?
$4000
$25,000
$33,000
$29,000 x his interest rate

1

If you were offered two auto loan options with the same principal and interest rate, but one was a 48-month loan and one was a 72-month loan, which outcome below will reflect the impact of that difference in term?
The 48-month loan will cost less money overall
The 48-month loan will have lower monthly costs
The 48-month loan will take longer to pay off
The 48-month loan will always be a better choice

1

Shonda’s mom recommends that she spend a year building her credit history and boosting her credit score before she applies for a loan to buy her dream car, which costs $54,000. Why is that good advice?
A good credit score will reduce her down payment
A good credit score will reduce her principal
A good credit score will reduce her interest rate
A good credit score will allow her to pay the full $54,000 in cash

CALCULATE: The Cost of Auto Loans

Hudson got a raise and is looking to upgrade his car. Help him avoid expensive pitfalls!

2

Hudson has saved $2,500 for a down payment and is looking at a new Volkswagen Jetta. If he subtracts the cash allowance from the cost , how much of a loan would he need for…
Offer A:_______
Offer B:  _______ 

9

1

Part III: Reflection
What did Hudson learn about auto financing?

1

VIDEO: Demystifying Mortgages 📷9 min
Since the start of the 21st century, over half of US households have been homeowners rather than renters. What you may or may not know is that most homeowners can’t afford to buy their homes in one cash payment; instead, they take out a mortgage. Watch this video to answer the questions about mortgages.

1

How does an annual percentage rate (APR) for mortgages differ from a more traditional interest rate?

1

One downside of an adjustable-rate mortgage is that it is riskier than a fixed-rate mortgage. Explain why.

1

In the video’s amortization example, the borrower makes a $711 payment, where $375 goes toward paying interest and $336 goes toward paying the principal. Should the borrower be worried that they’ll never pay off the mortgage? Why or why not?

1

CALCULATE: Mortgage Costs
Buying a house is likely the biggest purchase you’ll ever make. To get ready, find out what the price tag will mean for your monthly budget.
Part I: Down Payment & Interest Rate
Tremaine wants to buy a one-bedroom condo in his small city’s downtown. Use the Bankrate Mortgage Calculator to complete the table comparing his options.
Tremaine
Home price: $170,000
Down payment: TBD
Loan term: 30-year fixed mortgage
Interest rate: TBD
ZIP code: 37307

3

1

Summarize: How does Tremaine’s down payment and interest rate impact his cost of buying a condo?

Part II: House Price & Monthly Payment
Carlin
Home price: TBD
Down payment: $30,000. 
Saved $20,000 + $10,000 in down payment assistance
Term: 30-year fixed mortgage
Interest rate: 7.07%
ZIP code: 64116

3

1

3

If Carlin could afford the extra payments, she could also afford a more expensive house.
What is the most expensive house she could afford with a $1,500 monthly payment? Note: Check the down payment amount is correct and round to the nearest $1,000._______ 
Do you think she should buy the more expensive house? _______ Why or why not?_______ 

2

4.04 Auto Loans and Mortgages

PROMPT: Household Debt & Credit Report 📷1 min

Based on this data, what observations can you make about household debt in the US?

FINCAP FRIDAY: What’s Buy Now, Pay Later? 📷9 min

If Buy Now, Pay Later loans are just breaking your payment into 4 equal parts, how could this deal possibly become problematic to the borrower?

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?The interest portion will growThe interest portion will shrinkThe interest portion will stay the sameThe interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?Substantially less than $396Slightly less than $396Exactly $396Slightly more than $396

EDPUZZLE: All About Car Loans 📷11 min

INTERACTIVE: Auto Loan Calculator 📷7 min

What are two reasons someone might purposely choose a HIGHER monthly payment?

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?$4000$25,000$33,000$29,000 x his interest rate

Part III: ReflectionWhat did Hudson learn about auto financing?

VIDEO: Demystifying Mortgages 📷9 min

How does an annual percentage rate (APR) for mortgages differ from a more traditional interest rate?

One downside of an adjustable-rate mortgage is that it is riskier than a fixed-rate mortgage. Explain why.

In the video’s amortization example, the borrower makes a $711 payment, where $375 goes toward paying interest and $336 goes toward paying the principal. Should the borrower be worried that they’ll never pay off the mortgage? Why or why not?

Part I: Down Payment & Interest Rate

Summarize: How does Tremaine’s down payment and interest rate impact his cost of buying a condo?

Part II: House Price & Monthly Payment

PROMPT: Household Debt & Credit Report 📷1 min

Based on this data, what observations can you make about household debt in the US?

FINCAP FRIDAY: What’s Buy Now, Pay Later? 📷9 min

If Buy Now, Pay Later loans are just breaking your payment into 4 equal parts, how could this deal possibly become problematic to the borrower?

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?The interest portion will growThe interest portion will shrinkThe interest portion will stay the sameThe interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?Substantially less than $396Slightly less than $396Exactly $396Slightly more than $396

EDPUZZLE: All About Car Loans 📷11 min

How can making a larger down payment save you money when purchasing a car? (Choose two correct answers)

A higher credit score...Will help you obtain a lower interest rate on an auto loanWill help you obtain a higher interest rate on an auto loanHas no impact on the interest rate on an auto loan

A longer term length will make your monthly payment lower and you will pay _______ interest when compared to a shorter term length and higher monthly payment.

According to the video, what is the first step in purchasing a new vehicle?Take multiple vehicles for a test drive to see what features you like bestCreate a budget and check your credit scoreGet an insurance quote for you new vehicleDecide which color vehicle you want most

INTERACTIVE: Auto Loan Calculator 📷7 min

What are two reasons someone might purposely choose a HIGHER monthly payment?

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?$4000$25,000$33,000$29,000 x his interest rate

Part II: The Fine Print

Part III: ReflectionWhat did Hudson learn about auto financing?

Hudson desperately wants a Volkswagen Jetta, but the monthly payment with the dealership’s offer is above his monthly budget. What could he do?

VIDEO: Demystifying Mortgages 📷9 min

How does an annual percentage rate (APR) for mortgages differ from a more traditional interest rate?

One downside of an adjustable-rate mortgage is that it is riskier than a fixed-rate mortgage. Explain why.

In the video’s amortization example, the borrower makes a $711 payment, where $375 goes toward paying interest and $336 goes toward paying the principal. Should the borrower be worried that they’ll never pay off the mortgage? Why or why not?

Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?

Part I: Down Payment & Interest Rate

Summarize: How does Tremaine’s down payment and interest rate impact his cost of buying a condo?

Part II: House Price & Monthly Payment

Part III: Reflect

How can making a larger down payment save you money when purchasing a car? (Choose two correct answers)

A higher credit score...Will help you obtain a lower interest rate on an auto loanWill help you obtain a higher interest rate on an auto loanHas no impact on the interest rate on an auto loan

A longer term length will make your monthly payment lower and you will pay _______ interest when compared to a shorter term length and higher monthly payment.

According to the video, what is the first step in purchasing a new vehicle?Take multiple vehicles for a test drive to see what features you like bestCreate a budget and check your credit scoreGet an insurance quote for you new vehicleDecide which color vehicle you want most

Part II: The Fine Print

Hudson desperately wants a Volkswagen Jetta, but the monthly payment with the dealership’s offer is above his monthly budget. What could he do?

Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?

Part III: Reflect

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
The interest portion will grow
The interest portion will shrink
The interest portion will stay the same
The interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?
Substantially less than $396
Slightly less than $396
Exactly $396
Slightly more than $396

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?
$4000
$25,000
$33,000
$29,000 x his interest rate

Part III: Reflection
What did Hudson learn about auto financing?

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
The interest portion will grow
The interest portion will shrink
The interest portion will stay the same
The interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?
Substantially less than $396
Slightly less than $396
Exactly $396
Slightly more than $396

A higher credit score...
Will help you obtain a lower interest rate on an auto loan
Will help you obtain a higher interest rate on an auto loan
Has no impact on the interest rate on an auto loan

According to the video, what is the first step in purchasing a new vehicle?
Take multiple vehicles for a test drive to see what features you like best
Create a budget and check your credit score
Get an insurance quote for you new vehicle
Decide which color vehicle you want most

Antonio has $4000 saved to use for a down payment, and he’s about to buy a car that costs $29,000. How much would you expect his loan principal to be?
$4000
$25,000
$33,000
$29,000 x his interest rate

Part III: Reflection
What did Hudson learn about auto financing?

A higher credit score...
Will help you obtain a lower interest rate on an auto loan
Will help you obtain a higher interest rate on an auto loan
Has no impact on the interest rate on an auto loan

According to the video, what is the first step in purchasing a new vehicle?
Take multiple vehicles for a test drive to see what features you like best
Create a budget and check your credit score
Get an insurance quote for you new vehicle
Decide which color vehicle you want most