1. FINANCING
YOUR HOME
UNIT 5, LESSON 3
ORCUTT ACADEMY HIGH SCHOOL
FINANCE & ACCOUNTING

2. Adjustable vs. Fixed-Rate
30-year vs. 15-year
Finding a Lender
Points & Interest Rates
PREVIEW

3. Lesson 3.1
ADJUSTABLE-RATE VS. FIXED-RATE
30-YEAR VS 15-YEAR

4. 15-YEAR VS. 30-YEAR
15-year 30-year
Pay off faster, Build equity faster Takes longer to pay off
Higher payments Lower payments
Lower interest rate (about ½
percent)
Higher interest rate
If you don’t plan on investing, it is
better to pay off your mortgage
faster
Alternative uses for saving
investing

5. FIXED-RATE MORTGAGES
Interest rates never change
Monthly mortgage payment does not change
No uncertainty
BUT… if interest rates fall (and you can’t refinance), you are
stuck with your higher-cost mortgage

6. ADJUSTABLE RATE
MORTGAGES
• Interest rate varies over time
• Can change yearly, or even monthly
• Most often, every 6 or 12 months
• Monthly mortgage payment fluctuates
• Advantage: Potential interest savings
• Lower rates for the first few years
• After that, your rate depends on overall trends

7. CHOOSING BETWEEN
FIXED AND ADJUSTABLE
• Consider your ability to take on financial risk
• Reliability of income
• Job security
• Emergency savings
• Future expenses
• Stress level
• If you can’t afford the highest allowed payment on an
adjustable-rate mortgage, don’t take it.

8. CHOOSING BETWEEN
FIXED AND ADJUSTABLE
• Consider how long you plan to keep the mortgage
• Adjustable rate mortgages have lower interest rates for the
first few years.
• Wise if you plan on keeping your mortgage less than 5-7

9. Lesson 3.2
FINDING A LENDER

10. SHOPPING FOR A
LENDER ON YOUR OWN
• Large banks usually don’t offer the best rates
• Check out smaller lending institutions
• Using a local bank can sometimes be a plus. Their staff
generally understand the specifics of local properties
• Find mortgage companies in cities across the country

11. HIRING A MORTGAGE
BROKER
• Brokers
• Submit the home buyer's application to one or more
lenders
• Work with the chosen lender until the loan closes
• Can often find a lender who will make loans that a bank
refuses
• May be necessary for problem credit

12. MORTGAGE BROKERS
Get paid a percentage of the loan amount
• typically 0.5-1%
Ask your mortgage broker what his cut is
The broker should shop among lenders to get you a good deal
Help you fill out documents lenders demand before giving you a
loan

13. BEWARE
• Some brokers place their business with the same lenders
all the time, those usually don’t offer the best rates
• You can shop on your own, so you can compare with what
your broker tells you
• Thoroughly check a broker’s references before you do
business with them
• Make sure you ask who the lender is—most brokers refuse
to reveal this info until you pay a certain amount to cover
the appraisal and credit report

14. Lesson 3.3
POINTS AND INTEREST RATES

15. POINTS
• The initial fee charged by the lender, with each point being
equal to 1% of the amount of the loan.

16. THE SEESAW EFFECT
• As points go up, the interest rate goes down. As points
go down, the interest rate goes up.
• It is important to consider both the points and the interest
rate when comparing two mortgage loans.

17. COMPARING
MORTGAGES

18. GETTING THE BEST RATE

19. 1. Why is it financially wise to make a down payment of at least
20 percent of the purchase price of the property?
2. Why would you choose a fixed-rate loan? An adjustable rate
loan?
3. Why should you consider both the interest rate and the
points of a loan when shopping for a loan?
ESSENTIAL QUESTIONS
WHAT ARE YOU LEARNING? WHY ARE YOU LEARNING IT? HOW WILL YOU USE IT?