TOTAL HOUSING COSTUNIT 6, LESSON 2

ORCUTT ACADEMY HIGH SCHOOL

FINANCE & ACCOUNTING

Calculating Mortgage Payment

Taxes: The Cost and the Benefit

Insurance & Maintenance

Calculating Total Housing Cost

PREVIEW

TOTAL HOUSING COST

1. Mortgage Payment

2. Taxes

• The Cost and the Benefit

3. Insurance

4. Maintenance

CALCULATING MORTGAGE PAYMENT

CALCULATE MORTGAGE USING MULTIPLIER

Interest Rate 15-year mortgageMultipliers

30-year mortgage

4% 7.4 4.77

4.5% 7.65 5.07

5% 7.91 5.37

5.5% 8.17 5.68

6% 8.44 6.00

6.5% 8.71 6.32

7% 8.99 6.65

8% 9.56 7.34

9% 10.14 8.05

10% 10.75 8.78

Multiply the multiplier by your mortgage expressed in thousands of dollars (divided by 1000)

EXAMPLE

Skye is taking out a $100,000 30-year mortgage at 6.5%. What will be her monthly mortgage payment?

The multiplier is 6.32, so

Monthly mortgage payment = 6.32 x 100,000/1,000

= 6.32 x 100

= $632

CALCULATE MORTGAGE USING FORMULA

M = P [ i(1 + i)n ] / [ (1 + i)n - 1] M = The monthly payment

P = The principal, or the amount of money being borrowed

i = The interest for each compounding period, or the interest per month for a standard mortgage

n = The number of compounding periods, or the number of months for a standard mortgage

EXAMPLE

Go to Mortgage Math Workbook

TAXES: THE COST AND THE BENEFIT

TAXES: THE COST• Homeowners pay property tax, which helps support local

governments.

• Based on the assessed value of your home

• Land + Improvements• May be higher or lower than the purchase price of the

home

TAX RATES• Set by the county

• Usually about 1-2%

• Average property tax rates by state• Ex: Santa Barbara County

CALCULATING TAX COSTS

The value of a home in Greenwood County is $285,000. Property taxes in Greenwood are 1.25%. What is the monthly property tax bill for the home?

Annual property tax bill: (285,000)(.0125) = $3562.50

Monthly property tax bill: (3562.50)/12 = $296.88

TAXES: THE BENEFIT• You can deduct

• Interest paid to buy, build, or improve your home• Interest paid on a home equity loan• Property taxes

• You can deduct a second home

• Learn more about Tax Deductions on Mortgage Interest

CALCULATING THE TAX BENEFIT OF OWNING

TAX BENEFIT =

(Mortgage Payment + Property Taxes) (Tax Bracket)

EXAMPLE

Tyler’s gross annual income is $83,000. His mortgage payment is $1,200/month and he pays $260/month in property taxes. What is his tax benefit from owning.

(1200+260)(.25) = $365

Tax Brackets 2012 (Estimated) Single (Est) Married Filing Jointly (Est) Head of Household 10% Bracket $0 – $8,700 $0 – $17,400 $0 – $12,400 15% Bracket $8,700 – $35,350 $17,400 – $70,700 $12,400 – $47,350 25% Bracket $35,350 – $85,650 $70,700 – $142,700 $47,350 – $122,300 28% Bracket $85,650 – $178,650 $142,700 – $217,450 $122,300 – $198,050 33% Bracket $178,650 – $388,350 $217,450 – $388,350 $198,050 – $388,350 35% Bracket $388,350+ $388,350+ $388,350+

HOMEOWNER’S INSURANCE

HOMEOWNER’S INSURANCE• On average, between $45 and $75/month

• Varies depending on

• Home’s value • Location • Homeowner’s demographics• Type and amount of insurance

LEARN MORE…

Tips on homeowner’s insurance

MAINTENANCE

MAINTENANCE

About 1% of the home’s value on average

Example:

A home with a value of $475,000

Annual maintenance = (475,000)(.01) = $4,750

Monthly maintenance = 4,750/12 = $395.83

MAINTENANCE CHECKLIST

National Healthy Homes Training Center Checklist

TOTAL HOUSING COST

TOTAL HOUSING COST

PUTTING THE PIECES TOGETHER!

Total Housing Cost =

(Mortgage Payment + Property Tax + Insurance + Maintenance) – (Tax Benefit)

EXAMPLE 1Taylor is an actor living in Los Angeles, California where the property tax is 1.25%. Her gross annual income is $71,500 and the value of her property is $367,000. Her monthly mortgage payment is $1,200 and she pays $40/month for insurance. Estimate her total housing costs.

Total Housing Cost =

(Mortgage Payment + Property Taxes + Insurance + Maintenance) – (Tax Benefit)

Mortgage Payment = $1,200

Property Taxes = (367,000)(.0125)/12 = $382.29

Insurance = $40

Maintenance = (367,000)(.01)/12 = $305.83

Tax Benefit = (Mortgage Payment + Property Taxes)(Tax Bracket)

(1200 + 382.29)(.25) = 395. 57

Total Cost = 1200 + 382.29 + 40 + 305.83 - 395.57 = $1532.55

1. To calculate the mortgage payment, what three pieces of information do you need to know?

2. How do taxes affect the overall total cost?

3. What components make up the total monthly housing cost?

ESSENTIAL QUESTIONS

WHAT ARE YOU LEARNING? WHY ARE YOU LEARNING IT? HOW WILL YOU USE IT?