Your Objectives

• Decide whether a fixed-rate or adjustable-rate mortgage is better in specific situations.
• Estimate the amount of a mortgage for which a couple could qualify in a given situation. 

• Choose which home and mortgage would be better under given circumstances.
  

     Decision Preparation

At the Bankrate.com website, study the short lessons on How Mortgages Work, Types of Mortgages:  Fixed Rate, Types of Mortgages:  Adjustable-Rate Mortgage (ARM), and Adjustable Versus Fixed Mortgages.  Print the Mortgage Tables.  As you study the lessons, note on the first three lines of the first table, the current (overnight average) on 30-year fixed rate mortgages, 15-year fixed rate mortgages, and 1-year ARMs (in the lessons, there is a link to the page showing these rates).

         The Decision Situation

You and your spouse are shopping for a mortgage.  

1. Use the tables you printed in the Decision Preparation section to complete the instructions which follow.  Then type the information into the online Mortgage Tables, proofread your work,  and click on the Submit Button.
2. Determine whether you should choose a fixed rate mortgage or an adjustable rate mortgage under each of the circumstances specified in Table 2:  Fixed or Adjustable-Rate Mortgage?.  Then justify your decision, citing a quote (enclose it in parentheses) from the bankrate.com lessons as a part of at least two of your justifications.
3. You would like to get an estimate of the mortgage amount for which you might qualify based on your $3,700 monthly income.  You are already paying $400 per month on a car loan, and $300 monthly on an education loan, but you have no other debt payments.  You estimate that your property taxes on the home you purchase will be $500 per year, and so will your homeowner's insurance.  Use the How Much Can Your Borrow Calculator at the Mortgage-X.com website to complete Table 3:  How Much Can You Borrow?.  In the interest rate cell of the How Much Can You Borrow Calculator, use the rates you noted for the 30-year fixed-rate, the 15-year fixed-rate mortgage, and the 1-year adjustable-rate mortgage while studying the lessons at the Bankrate.com website. 
4. Assume you and your spouse have decided to buy either a $93,750 home upon which you would have a $75,000 mortgage, or a $62,500 home with a $50,000 mortgage.  You are undecided as to which home to buy, as well as the impact the mortgages would have upon your financial situation.  You prefer a fixed-rate mortgage over an ARM, but are not sure whether a 15-year fixed-rate or a 30-year fixed-rate mortgage would be better.   To help you make a decision on the homes and the mortgages, you have decided to use the How Much Will Your Monthly Payments Be Calculator at the Mortgage-X.com website.  Again, use the rates you noted from your study of the lessons at the Bankrate.com website.  Enter the output from the How Much Will Your Monthly Payments Be Calculator in Table 4:  Home and Mortgage Choice Table and then make the choices indicated in the table.

    Related Web Sites for Further Exploration

For an article concerning ten big mistakes a person can make when financing a home, go to the Best Mortgage Rates website.

For a good explanation of debt-to-income ratios in connection with mortgages, as well as calculators to compute the ratios, your monthly mortgage, etc., visit the BYG Publishing website.

To check on mortgage rates in your area, visit the Bankrate.com website.

To gain an understanding of the loan application process, go to the Cypress Mortgage Company website.

To view a month by month amortization of a mortgage, use the calculator at the Interest Rates Online website.

     Net Worth Payoff

Your net worth will increase by $50,000 if you successfully complete this financial choice.  The $50,000 increase in net worth will be earned as follows:

• $20,000 for completing Table 2:   Fixed or Adjustable-Rate Mortgage? ($5,000 for correctly making and adequately justifying each of the four choices)

• $6,000 for completing Table 3:  How Much Can You Borrow? ($1,000 per cell)

• $24,000 for completing Table 4:  Home and Mortgage Choice ($8,000 for entering correct data concerning the $75,000 and $50,000 mortgages, and $4,000 for each of the four items requiring a decision and a written explanation or justification)

Maximization of Net Worth Checklist:    

Now that you have completed this financial choice, check to make sure that you have done the following:

          Studied the mortgage lessons at the Bankrate.com Web site and noted the current rates on the three mortgages in Table 1:  Current Mortgage Rates.

          Completed  Table 2:   Fixed or Adjustable-Rate Mortgage?, Table 3:  How Much Can You Borrow?, and Table 4:  Home and Mortgage Choice Table.

          Submitted the Mortgage Tables.

          Visited any of the Related Web Sites for Further Exploration you found of interest.