Lab Description
This Lab is designed to provide students with a comprehensive understanding of mortgages, the basic components of a mortgage, amortization, the implications of late payments and defaults, and the role of Private Mortgage Insurance (PMI). The lab also aims to help students compare the financial impact of buying versus renting a home. Through hands-on activities and interactive tools, students will develop critical financial literacy skills and the ability to make informed decisions about homeownership.
Key Concepts Covered:
Home Loan Basics:
- Definition and purpose of a mortgage.
- Components of a mortgage payment: principal, interest, down payment, APR
- Impact of interest rates and loan durations on mortgage payments.
- Different parameters that affect the APR of a home loan.
In-Depth Look at Mortgages
- Amortization schedule of a mortgage.
- Principal-only payments and their effect on total interest paid.
- Students will act as mortgage brokers to help find the optimal down payment, mortgage points, and loan duration for two individuals.
- Financial implications of buying a house versus renting for different durations.
- Consequences of Late Payments and Defaults
- Homeownership responsibilities
The lab is full of highly interactive activities that cover many real-world scenarios. The Mortgage Lab provides students with essential financial literacy skills, enabling them to understand the complexities of mortgages and make informed decisions about homeownership. Encourage students to actively participate in discussions, ask questions, and reflect on what they have learned to maximize their understanding and application of the concepts covered in this lab.
The lab contains materials to introduce and set the stage for the lab, as well as materials to do final reviews and classroom discussions.
Who this course is for
The course content is tailored to suit the age group and educational level of middle and high school students, ensuring that the concepts are presented in a clear, accessible, and engaging manner.
The course is designed to provide them with a solid foundation in understanding home loans and personal finance.
Home Loan Basics (73 Minutes)
Sub Activities
- Average Cost of Housing
This activity introduces students to home loans and some of the terminology associated with them. This lesson will introduce them to the ideas of principal and interest, typical loan terms, and amortization.
Sub Activities
- Review Questions
- Mortgage Basics
- Effect of Loan Duration
- Effect of Interest Rate
Students will read and understand the concept of APR (Annual Percentage Rate) and the different factors affecting the APR.
Students will use interactive worksheets to find out the relationship between
- APR and Loan Duration
- APR and Down Payment
- APR and Credit Score
- APR and Points
Here is an example worksheet to analyze the effect of loan duration on APR-
Sub Activities
- APR and Loan Duration
- APR and Down Payment
- APR and Credit Score
- APR and Points
In-Depth Look at Mortgages (78 Minutes)
Students will read and understand that an amortization schedule provides a detailed breakdown of the monthly payment, and they will understand importance of different columns in an amortization table.
Sub Activities
- Amortization Schedule
- Effect of Interest Rate & Duration
- Why the Surge in Interest?
Students will read and understand that principal-only payments help to reduce the total interest to be paid.
Sub Activities
- Principal Only Payments
Students will read about the things to take care of when going for a mortgage loan, such as - Assessing their Financial Situation, Determining a Down Payment, Evaluating Interest Rates and Loan Terms, etc. They will also be given an introduction to the next worksheet activities where they will be acting as a mortgage broker.
Sub Activities
- Situation 1
- Situation 2
Students will read and understand the pros and cons of both buying a house and renting a house. Students will understand that we can't have an apples to apples comparison, which is better depends on the personal circumstances and goals.
Sub Activities
- Compare Renting and Owning
In this reading activity, students will read and understand that home ownership is not just about mortgage payments but additional responsibilities such as Property Taxes, Homeowners Insurance, Maintenance and Repairs, etc.
Sub Activities
- Review Questions
The learning objective of this reading activity is to educate students on the importance of timely financial management and the serious repercussions of failing to meet payment obligations. By understanding the potential financial and credit-related consequences of late payments and defaults, students will be better equipped to manage their finances responsibly and avoid negative impacts on their credit scores and overall financial health.
The learning objective of this activity is to help students understand the key parameters involved in obtaining a home loan and how these parameters interconnect and influence each other. Through writing a letter to their cousin, students will identify critical factors such as interest rates, loan term, down payment, and monthly payments, and explain how changes in one parameter can affect the others. This activity aims to develop students' ability to articulate financial concepts clearly and understand the complexities of home loans, thereby enhancing their financial literacy and decision-making skills.
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National Standards in Financial Education
Students will know that Interest rates and fees vary by type of lender, type of credit, and market conditions .. Students will use this knowledge to 8-1a . Identify financial institutions and businesses that offer consumer credit . 8-1b . Compare lenders based on type of credit offered, interest rates, and fees . 8-1c . Explain how market conditions impact interest rates .
Students will know that Financial institutions advertise loan costs to potential borrowers using the Annual Percentage Rate (APR), expressed as an annual percentage of the loan principal . Low introductory rates offered to attract customers may increase later .. Students will use this knowledge to 8-2a . Describe how lenders advertise loan costs to potential borrowers . 8-2b . Calculate APR, given annual interest and loan amount . 8-2c . Investigate what happens to a low introductory interest rate when the borrower misses a payment or makes a late payment .
Students will know that The longer a loan repayment period and the higher the interest rate, the larger the total amount of interest paid by a borrower .. Students will use this knowledge to 8-3a . Describe the effect of higher interest rates and longer loan terms on the total cost of a loan . 8-3b . For a given monthly payment, loan amount, and loan repayment period, calculate the total amount of interest paid by the borrower .
Students will know that Lenders charge different interest rates based on borrower risk of nonpayment, which is commonly evaluated using information in the borrower’s credit report .. Students will use this knowledge to 8-5a . Identify the types of information contained in a credit report . 8-5b . Discuss how a borrower’s credit history can impact their borrowing costs .
Students will know that When people borrow money to invest in higher education or housing, the risks and costs may be outweighed by the future benefits .. Students will use this knowledge to 8-6a . Explain why using credit to finance education and housing could be beneficial . 8-6b . Assess the benefits and costs of using credit to finance education and housing versus using credit to purchase food and clothing . 8-6c . Justify the use of credit for a specific purchase .
Students will know that Borrowing increases debt and can negatively affect a person’s finances .. Students will use this knowledge to 8-7a . Identify indicators that a person has accumulated too much debt . 8-7b . Predict the possible consequences of having a lot of debt payments relative to income .