Credit · Lesson Plan
Mortgages and Compound Interest
An advanced lesson on the math behind the biggest loan most people ever take: a mortgage. Students compare simple and compound interest, see how compounding frequency (annual, quarterly, monthly) changes the result, learn the inverse relationship between future value and present value, and apply the monthly mortgage-payment formula to real home-loan scenarios (answer key included).
For Teachers
Lesson at a glance
- Topic
- Credit
- Grade Level
- Grades 11–12 / College
- Resource Type
- Lesson + Worksheet
- Estimated Time
- 60–90 minutes
- Format
- Lesson + worksheet + answer key
- Materials
- Printable lesson, worksheet, calculator
What Students Learn
Learning objectives
- Distinguish simple interest from compound interest
- Calculate future value with different compounding frequencies
- Explain the inverse relationship between future and present value
- Apply the monthly mortgage-payment formula
- Compare loan options by their monthly payment and cash flow
Materials
What you’ll need
- Printed copies of the lesson and worksheet (one per student)
- Scientific calculators
- Pencils
- Whiteboard or projector for the worked formulas
Key Terms
Vocabulary
- Simple interest
- Interest figured only on the starting principal.
- Compound interest
- Interest figured on the principal plus accumulated interest.
- Compounding frequency
- How often interest is added (annual, quarterly, monthly).
- Future value (FV)
- What an amount grows to after earning interest.
- Present value (PV)
- Today’s value of a future amount.
- Mortgage
- A loan using property as security, repaid in equal payments.
For Teachers
Lesson plan
Estimated time: one to two periods (60–90 minutes). Advanced — assumes comfort with exponents and formulas.
Lesson sequence
- Simple vs. compound (15 min). Work the $5,000 examples to show how compound interest outpaces simple interest.
- Compounding frequency (15 min). Recalculate with quarterly and monthly compounding; show that more frequent compounding yields more.
- FV and PV (10 min). Derive the inverse relationship between the future-value and present-value formulas.
- Mortgage payments (20 min). Apply the payment formula to the worked home-loan examples, then students complete the 16-item worksheet.
- Review (10 min). Check against the answer key.
Assessment
Assess the completed worksheet against the included answer key.
Discussion
Discussion questions
- Why does compound interest grow faster than simple interest?
- How does compounding monthly instead of annually change the result?
- What three things determine your monthly mortgage payment?
- Why might a shorter-term loan have a higher monthly payment but cost less overall?
- How are the future-value and present-value formulas related?
Printable Lesson, Worksheet & Answer Key
Mortgages and Compound Interest — Lesson, Worksheet & Answer Key
A printable advanced lesson on compound interest and mortgage payments, with a 16-item worksheet and a full answer key.
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