Mortgages

While listening to the radio last night there were a ton of stories about the hike in long-term interest rates here in Canada. These stories generated a lot of buzz around mortgages. Many experts were saying that homeowners should lock their variable rate mortgages into a fixed rate mortgages.

One of these brokers caught my attention. He suggested sticking with a variable rate but making the payments as if you were on a five year fixed mortgage. This would pay down principal a lot faster. Here's the math...He said that on a $300 000 mortgage this method would result in a savings of $8000/year. My first thought was 'I wonder if that means that on a $150 000 mortgage your savings would be $4000'. It was a very simple question as I was driving, but I quickly realized how useful it could be when talking about exponential functions and to see how much students have understood. It's also a nice way to show students how the math they're learning relates to everyday life.

The question could simply be: Would a mortgage of $150 000 (or $600 000) result in a savings of $4000 (or $16 000)? Why or why not?