Question of the Day: How much more in interest does a consumer with a low credit score pay when it comes to a home loan (mortgage)?
It's why managing your credit score is so important and the lesson on credit scores could be worth six figures in savings.
Answer: $312 per month or $112,241 over a 30 year period (typical term for a home loan) which is the difference between the highest credit score (760-850) and the lowest (620-639). Click on image to visit interactive.
Note: Assumes a thirty year fixed rate mortgage for $286,400
- What do you notice about the relationship between a credit score and the interest rate on a mortgage?
- Why do you think that lenders charge different interest rates based on a borrower's credit score?
- What do you think is one way to earn a good credit score?
Here are the ready-to-go slides for this Question of the Day that you can use in your classroom.
Behind the numbers (Bankrate):
Although it’s up to specific lenders to determine what score borrowers need to be offered the lowest mortgage interest rates, a difference of just a few points on your credit score can sometimes affect your monthly payments substantially. For example, the difference between a 5.5 percent interest rate and a 6 percent rate on a $200,000 mortgage is $64 per month. That comes out to more than $23,000 over the course of a 30-year mortgage term.
NGPF's Arcade Game, Shady Sam, helps students understand credit from a lender's perspective.
It's Round 3 of the FinCap Friday Frenzy. Just follow these simple rules and your class could earn a virtual visit from Yanely and more!
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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