Friday, January 22, 2016

Mortgage rates

Cottage, House, Home, Building, Little  At some point in math, we teach the topic of interest.  Depending on the class, it might be calculating either simple or compound interest.  Usually, I assign appropriate practice problems but that is as far as it goes. 

Today, while watching TV, I watched several ads dealing with buying houses, credit cards, cars and a variety of other items that charge interest because they are bought on time.

So as part of the unit, why not have students research current interest rates for 15, 20, and 30 year house loans, then create a spread sheet with the monthly payments, amount of interest paid on original loan all based on different interest rates.  Although the monthly payments may be higher for a 15 year loan but the amount of total interest paid is lower. 

Econedlink has a wonderful page with the lesson plan and all the information to create the actual spreadsheet for loan amortization including the links, vocabulary, and the template.  This activity can easily be modified to use current interest rates for different length loans.

The next interest to investigate is associated with credit cards.  There are so many different offers out there that students need to understand how various types of interest works.  This spreadsheet lesson from Boise State has students create spreadsheets to look a fixed rate card, a variable rate card and the amount more they end up paying should they miss a payment.

In addition NCTM Illuminations also offers a lesson on credit card interest which explores how long it would cost to pay off a balance of $200 with 22 percent interest.  The activity comes with both a compound interest simulator and a spread sheet for calculating the cost of being late.  This is a nice activity with everything needed to teach the lesson.

Another large purchase which requires a loan that will accrue interest is when a student decides to purchase a car.  Econedlink has a good unit for teaching this topic but you could easily use parts of it to help students calculate the amount of interest for various interest rates and loan times.

The website Teachersnet has an activity for cars, houses, and loans were students will use spreadsheets to calculate compound interest for buying cars and houses.  This activity has them calculate the interest and loan amortization for their purchases.  This takes things one step further and has them decide if they can afford the house or car of their dreams based on a predetermined monthly income.

Once students learn how to calculate interest using a spreadsheet, it would be easy for them to create one to calculate the cost of interest on a huge furniture purchase with two or three scenarios such as no interest payment for the first 6 months and payment including interest beginning the first month.

Most of the students I work with  so not have any experience with the above purchases so when they move to the city and are faced with all those wonderful opportunities they have no idea what the real cost of anything is.