Home Loan - Principal Only Payment

Activity Description

In this worksheet, students will explore the importance of making principal-only payments on a loan by examining a mortgage scenario. They will understand how additional principal payments can significantly reduce the total interest paid and shorten the loan duration.

The scenario involves a $300,000 mortgage amount, an 8% interest rate, and a loan duration of 30 years. Students will use a slider to adjust the extra monthly principal payment and observe the impact on the total interest and loan duration.

Activities:

• Introduction to Principal-Only Payments: Students will receive an overview of how principal-only payments work and their benefits in reducing loan interest and duration.
• Mortgage Scenario: Students will be presented with a scenario involving a $300,000 mortgage, an 8% interest rate, and a 30-year loan duration. They will see the total interest to be paid without any extra payments.
• Slider Activity: Students will use a slider to adjust the extra principal payment added each month. The slider will increase by $100 increments, and the new total interest to be paid and new loan duration will be displayed based on the slider value.
• Data Recording: Students will record the new loan duration, total extra payments made, and total interest savings for different principal-only payment amounts in a table.
• Reflection: Guided questions will help students reflect on the importance of principal-only payments and how they can use this strategy to save money on loans.

This worksheet is designed to enhance students' understanding of loan management and the benefits of principal-only payments, providing them with valuable financial literacy skills.

Students will use the slider to record the values in a table like below:

Learning Objective

The learning objective of this activity is to help students understand the financial impact of making principal-only payments on a mortgage loan. By using an interactive slider to adjust the amount of the principal-only payment, students will observe how these payments affect the total interest paid and the loan duration. This exercise aims to teach students how additional payments can significantly reduce the overall cost of a loan and shorten the repayment period. Furthermore, it encourages critical thinking by having students compare different scenarios, reinforcing the concept of interest savings through proactive financial management.

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