BUILDING BLOCKS TEACHER GUIDE
Borrowing money for a house
Students “buy” a local home and calculate payments based on
the principal, interest rate, and length of mortgage loans to learn
how different loan terms affect the overall cost.
Learning goals
Big idea
The amount actually paid for a home is
determined by the price and the mortgage
loan’s specic terms.
Essential questions
§ How do the principal, interest rate, and loan
term affect mortgage payments?
§ How do you compare loan offers to get the
b
est deal?
Objectives
§ Make informed choices about mortgages
§ Calculate monthly payments for loans based
o
n the principal, interest rate, and loan term
KEY INFORMATION
Building block:
Financial knowledge and
decision-making skills
Grade level: Middle school (6–8)
Age range: 11–14
Topic: Borrow (Getting loans, Managing
credit)
School subject: CTE (Career and
technical education), Math
Teaching strategy: Direct instruction,
Project-based learning
Bloom’s Taxonomy level: Understand,
Apply, Evaluate
Activity duration: 45–60 minutes
National Standards for Personal
Financial Education, 2021
Spending: 4-1, 4-2, 8-1, 8-2, 12-1, 12-2, 12-6
Managing credit: 4-1, 4-2, 8-1, 8-2, 8-3,
8-6, 12-3, 12-3
These standards are cumulative, and topics are not
repeated in each grade level. This activity may include
information students need to understand before
exploring this topic in more detail.
NOTE
Please remember to consider your students’
accommodations and special needs to ensure
that all students are able to participate in a
meaningful way.
Summer 2022
1 of 6
Consumer Financial
Protection Bureau
To nd this and other activities, go to:
consumernance.gov/teach-activities
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
2 of 6
Borrowing money for a house
What students will do
§ Calculate monthly payments on three mortgage loans.
§ C
ompare the three loans to identify the best deal for them.
§ R
eect on ways to reduce the amount owed on a loan.
Preparing for this activity
□ While it’s not necessary, completing the “Being a responsible borrower” activity
rst may make this one more meaningful.
□ P
rint copies of all student materials for each student, or prepare for students to
access them electronically.
□ E
nsure students have access to calculators.
□ T
o customize this activity for your local area, visit websites that list homes for
sale near you.
°
Print pictures and prices of four to six houses that vary in size and price.
°
Y
ou can further customize the activity by visiting the Consumer
Financial Protection Bureau’s “Explore interest rates” page at
https://www.consumernance.gov/owning-a-home/explore-rates/
to nd current interest rates in your state.
°
F
or each house you printed out, choose three interest rates for loans
available near you.
°
M
ake sure some loan options are 15-year mortgages and some are
30-year mortgages.
°
W
rite the three interest rates and terms on the pictures you printed for
each house.
□ M
ake enough copies of the sample house pictures for each student to have one.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
3 of 6
Borrowing money for a house
What you’ll need
THIS TEACHER GUIDE
§ Borrowing money for a house (guide)
cfpb_building_block_activities_borrow-money-for-house_guide.pdf
STUDENT MATERIALS
§ Borrowing money for a house (worksheet)
cfpb_building_block_activities_borrow-money-for-house_worksheet.pdf
§ Calculators
§ Pictures and prices of local homes
Exploring key nancial concepts
Most people don’t make enough money or have enough in
savings to buy something as expensive as a house. Instead, they
take out a loan that allows them to make payments, usually each
month, until the item is paid off. To buy a house, people usually
use some of their own money as a down payment and borrow the
rest of the money (the principal) they need. A loan that people
use to buy a house is called a mortgage.
Banks, credit unions, and other nancial institutions offer
mortgages with different interest rates and terms. Interest is the
fee the lender charges for borrowing money. The interest rate
can be higher or lower depending on your borrowing history.
Mortgages also come in different terms. The term is the amount
of time the loan is supposed to last. Generally, mortgages have a
term of 15 years or 30 years.
The lower the loan numbers are, the better the outcome for you:
§ Lower principal = less money you borrow and therefore less money you’ll repay
§ Lower interest rate = less interest you’ll be charged to borrow money
§ Shorter term = fewer total payments you’ll have to make, but each payment
i
s higher
TIP
Because products, terms, and
laws related to mortgages
change, students should
be encouraged to always
look for the most up-to-date
information.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
4 of 6
Borrowing money for a house
When people are thinking of buying a house, it’s a good idea for them to track
their spending and create a budget if they’re not already doing this. This will help
them gure out how much they can spend on their mortgage each month. It’s also
a good idea to shop around for mortgage loans to get the best deal.
Understanding the real costs of borrowing money can help you make informed
credit and loan decisions.
Teaching this activity
Whole-class introduction
§ Ask the students to raise their hands if they would like to buy a home when
they are adults.
§ T
ell students that they’ll learn about borrowing money to buy a home.
°
Y
ou can read the “Exploring key nancial concepts” section of this guide
aloud to the class to introduce the idea of mortgages.
§ R
eview with students how to use an oversimplied interest formula of principal x
rate x term to calculate monthly payments. This oversimplied interest formula
is often written as I = P × R × T:
°
I = t
he amount of simple interest
°
P = t
he principal (the amount borrowed)
°
R = t
he interest rate of the loan
°
T = t
he period of time (in years) from the date the money
was borrowed to the date it was repaid
§ Di
stribute the “Borrowing money for a house” worksheet
to students.
°
It’s recommended that students use calculators to do the
math on the worksheet.
§ B
e sure students understand key vocabulary:
°
P
rincipal: In the lending context, principal is the amount
of money that you originally received from the lender and
agreed to pay back on the loan with interest.
°
I
nterest: A fee charged by a lender, and paid by a borrower,
for the use of money.
NOTE
This is an oversimplied
approach to determining
interest. The actual math will
likely be more complicated.
TIP
Visit CFPB’s nancial
education glossary at
consumernance.gov/
nancial-education-glossary/.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
5 of 6
Borrowing money for a house
°
Interest rate: A percentage of a sum borrowed that is charged by a lender or
merchant for letting you use its money.
°
L
oan: Money that needs to be repaid by the borrower, generally with interest.
°
M
ortgage: Mortgage loans are used to buy a home or to borrow money
against the value of a home you already own.
°
Te
rm: A xed or limited period of time for which something lasts or is
intended to last (for example, a ve-year loan, a three-year certicate of
deposit, a one-year insurance policy, a 30-year mortgage).
Individual work
§ Students will work independently to complete the worksheet.
°
I
f you have customized the activity based on the instructions in the “Preparing for
this activity” section, tell students to come to you to “buy” a home and use the
information you’ve provided instead of the loan information on the worksheet.
You’ll provide them with a picture and the price of a home listed for sale in your
area, along with the principal and three interest rate and term options.
§ S
tudents will then answer the reection questions.
Wrap-up
§ Bring students together and ask them to share their results.
°
Y
ou might consider documenting their results in a chart that shows
the original price of their house and how much they actually ended
up paying for it.
§ Ask students to share their answers to the reection questions.
Suggested next steps
Consider searching for other CFPB activities that address the topic of borrowing,
including getting loans and managing credit. Suggested activities include
“Asking for a loan” and “Understanding ways to pay for education after high school.”
Measuring student learning
Students’ answers on their worksheets and during discussion can give you a
sense of their understanding.
Summer 2022
BUILDING BLOCKS TEACHER GUIDE
6 of 6
Borrowing money for a house
This answer guide provides possible answers for the “Borrowing money for a
house” worksheet.
Keep in mind that students’ answers to reection questions may vary, as
there may not be only one right answer. The important thing is for students
to have reasonable justication for their answers.
Answer guide
This cell is
empty.
Principal Rate Term
Interest
charged
Total amount
paid
Monthly
payment
House loan
option 1
$299,400 3.69% 30 years $331,435.80 $630,835.80 $1,752.32
House loan
option 2
$299,400 3.15% 15 years $141,466.50 $440,866.50 $2,449.26
House loan
option 3
$299,400 3.35% 30 years $300,897.00 $600,297.00 $1, 667.49