Understanding mortgage loans

Understanding mortgage loans while you sharpen your basic mathematics skills is what you will learn in this lesson.

When buying a house most people take mortgage loans from a bank for the amount they finance, or the amount that is still unpaid.

When a loan is given, it is repaid with interest in equal monthly installments over a period of time, usually from 15 to 30 years.

Ever wondered about some simple basic math concepts involved in that type of loan?

Understanding mortgage loans and the basic math concepts behind mortgage loans with some examples.

Example #1:

Say for instance you buy a house for 250,000. Then, you make a down payment of 15% of the purchase price and take a 30-year mortgage for the balance.

What is your down payment?

What is your mortgage?

What is the total interest charged over the life of the loan if your monthly payment is 1200 dollars?

Down payment = Purchase Price × Percent Down

Down payment = 250,000 × 0.15 = 37500

Amount of Mortgage = Purchase Price − Down Payment

Amount of Mortgage = 250,000 − 37500 = 212500

If your monthly payment is 1200 dollars, what is the total interest charged over the life of the loan?


Total Monthly Payment = Monthly payment × 12 Months per year × Number of years

Total Monthly Payment = 1200 × 12 × 30 = 432000

Total Interest Paid = Total Monthly Payment − Amount of Mortgage

Total Interest Paid = 432000 − 212500 = 219500


Example #2:

The price of a house is 400000. Then, you make a down payment of 130000 and take a 30-year mortgage for the balance.

What is your down payment?

What is your mortgage?

What is the total interest charged over the life of the loan if your monthly payment is 1350 dollars?

Amount of Mortgage = Purchase Price − Down Payment

Amount of Mortgage = 400000 − 130000 = 270000

If your monthly payment is 1350 dollars, what is the total interest charged over the life of the loan?


Total Monthly Payment = Monthly payment × 12 Months per year × Number of years

Total Monthly Payment = 1350 × 12 × 30 = 486000

Total Interest Paid = Total Monthly Payment − Amount of Mortgage

Total Interest Paid = 486000 − 270000 = 216000

Use the quiz below to see how well you understand mortgage loans

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