Understanding Home and Car Financing

1. Chapter 6 Own a Home or Car

2. 6.1 Borrowing to Buy a Home

3. Down Payments and Closing Costs • Down Payment - % of the total cost of the house paid at the time of purchase to the lender • 0-30% • More put down less need to borrow • Mortgage loan – Balance of purchase price after down payment • Principal - $ borrowed

4. Closing Costs – fees and expenses paid to complete transfer of home ownership • 3 - 6% of purchase price of home • Mortgage = Purchase Price – Down Loan Payment • Cash Needed = Down + Closing Payment costs

5. 86000 * 0.25 = 86000 – 21500 = 64500 B. 64000 * 0.05 = 3200 64000 * 0.035 = 2240 3200 + 2240 = 5440

6. Mortgage Loan Interest Costs • Fixed rate mortgage – same rate of interest paid for life of loan • Variable rate mortgage – rate of interest is not guaranteed and may inc or dec • Mortgage payments are repaid gradually or amortized • Part of payment is principal and part interest

7. C. 620.24 from chart 20 * 12 = 240 620.24 * 240 = 148857.60 148857.60 – 80000 = 68857.60 D. 257.72 25 * 12 = 300 257.72 * 300 = 77316 – 40000 = 37316

8. Refinancing a Mortgage • Can replace fixed rate mortgage with lower rate if available • Pay closing costs and additional fees

9. E. 597 * 12 = 7164 465 * 12 = 5580 + 836 = 6416 7164 – 6416 = 748 F. 982 * 12 = 11784 876 * 12 = 10512 + 716 + 485 = 11713 11784 – 11713 = 71

10. 6.2 Renting or Owning a Home

11. Costs of Home Ownership • Costs of home ownership • Property taxes • Repairs • Maintenance • Utilities • Insurance • Mortgage interest • Special services • Depreciation • Loss of investment income

12. Depreciation – loss in value of property caused by aging and use • 1-4% of original value of home per year • Benefits • Interest on mortgage and property taxes deducted on tax return • Equity built up in home

13. 6848+3782+560+1790+1300+2050+1562=17892 17892-1320 = 16572 B. 87000 * 0.02 = 1740 5788+1904+347+1140+1740+900+1860 = 13679 – 1050 = 12629

14. Costs of Property Rental • Advantages of Renting: • No significant down payment • Interest income • Predictable house costs • Disadvantages of Renting • No federal income tax benefits • Do not build equity • Do not pay security deposit (one time payment)

15. C. 625*12= 7500 7500 + 625 + 85 + 1210 + 10 = 9430 D. 1250*13 = 16250 100*12 = 1200 16250 + 1200 + 136 + 1700 = 19286

16. Comparing Renting & Owning Homes E. House 9100+2926+560 = 12586 – 1600 = 10986 Rent 785*12 = 9420 +115+1150+200 =10885 10986-10885 = 101 rent cheaper

17. F. House 240 * 12 =2880+276+980+4060+764+57+945-274 =9688 Rent 510*12 = 6120 9688-6120= 3568 renting cheaper

18. 6.3 Property Taxes

19. Decimal Tax Rate • Property Taxes – Taxes on the value of real estate such as homes, businesses, or farm land • Collected annually or semiannually • Amount of property tax is based on assessed value of property

20. Amount to be Raised = Decimal By Property Tax Tax Total Assessed Value Rate • 6,750,000-650,000= 6,100,000 = 0.076 80,000,000 B. 1,950,000 = 0.0405 48,200,000

21. Tax Rates per $100 or $1000 of Assessed Value • / by 100 or 1000 and then x by rate C. 42000/100 = 420 * 3.736 = 1569.12 D. 120000/100 = 1200 * 4.128 = 4953.6 E. 67500/1000 = 67.5 * 50.08 = 3380.4 F. 13500 / 1000 = 13.5 * 25.83 = 348.71

22. Tax Rates in Mills or Cents per Dollar of Assessed Value • Mills /1000 x property • Cents/100 x property G. 52/1000 = 0.052 * 38400 = 1996.80 H. 3.8/100 = 0.038*32100 = 1219.8

23. 6.4 Property Insurance

24. Property Owners Insurance Premiums • Homeowners Insurance – policy that covers your home and protects you against other risks • Dwelling • Other Structures • Personal property • Additional living expense • Personal liability • Medical payments to others

25. Replacement Cost Policies – The insurance company will pay the cost of replacing your property at current prices • Premium – The amount paid to insurance company for property insurance • Rider insurance for specialty items • Rounded to nearest $

26. 61000/100 = 610 * 0.46 = 280.60 = 281 • 43000/100 = 430 * 0.74 = 318.20

27. Renters Insurance Premiums • Renters Policy – Covers content of house, not actual structure or building C. 165+31 = 196 D. 138

28. 6.5 Buying A Car

29. Manufacturer’s Suggested Retail Price • MSRP – Manufacturer’s Suggested Retail Price or sticker price • Base Price – Price paid for a model equipped with standard features

30. Cost of New Car Purchases Purchase Price Sales Tax Registration Fees Non-Taxable Items (warranties) Rebates Delivered Price – out the door price Down Payment Balance Due – usually borrowed

31. Delivered Price = Purchase Price + Sales Tax + Registration Fees + Non-taxable Items – Rebates Balance Due = Delivered Price – Down Payment

32. C. 20067*0.045=903 20067+903+250+134.85= 21354.87 21354.87-6000= 15354.87 D. 16238*0.06 = 974.28 16238+974.28+186= 17398.28 16238*0.10=1623.8 17398.28-1623.8= 15774.48

33. Cost of Used Car Purchases • Purchase Price – Price the buyer and seller agree upon E. 16500*0.07= 1155+16500+85+47= 17787 F. 11370 * 0.05= 568.50+200+129+11370 = 12267.50 11370*0.25=2842.5 12267.50-2842.5= 9425

34. 6.6 Depreciating a Car

35. Average Annual Depreciation • Car loses value as it ages • Resale value – Market value or the amount you get when you sell the car to someone else • Trade-in value – amount you get for your old car when you trade it in to buy a new car • Original – Trade in = Depreciation Cost Resale Value

36. Steps to calculate depreciation: • Estimate # of years the car will be kept • Estimate value of the car when it is resold or traded in • Subtract trade-in value from original cost • Divide depreciation by # of years

37. 19500-9800= 9700 9700/2= 4850 B. 14130-1800 = 12330 12330/9 1370

38. Rate of Depreciation • Rate of = Average Annual / Original Cost Depreciation Depreciation C. 23000-16100 = 6900/23000 = 0.30 or 30% D. 9200-368= 8832/12 = 736/9200= 0.08 or 8%

39. 6.7 Car Insurance

40. Car Insurance Premiums • 4 Basic Types of Auto Insurance • Bodily Injury • Property Damage • Collision-covers damage to your car • Comprehensive Coverage-ex. hitting a deer • State Mandated • Age 25 • If have a car loan-have to carry full coverage

41. 22.84+179.44+358.24+104.33 = 664.85 B. 79.74+274.44+574.70+135.62 = 1064.50

42. 6.8 Car Purchases and Leases

43. Financing • Often make a down payment and take out an installment loan • 1-7 years • 234.30 x 36 = 8,434.80 + 2,650 = 11,084.80 B. 805.47 x 60 = 48,328.20 + 4,500 = 52,828.20

44. Costs of Leasing • A lease is a contract • Lessor – the company that owns the car • Lessee – the person who will be given the right to use the car • Read the contract including mileage agreement

45. Lease Contract Includes: • Lease Price • Down Payment • Residual Value • Interest Rate • Lease Term • Security Deposit • Loan Fee • Registration Fees • Mileage Allowed

46. C. 528 x 24 = 12,672 30,850 – (12,000 x 2 ) = 6,850 x 0.20 = 1,370 + 12,672 = 14,042 D. 332 x 48 = 15,936 (3,000 x 4) x 0.07 = 840 + 15,936 + 418 = 17,194

47. Comparing Leasing and Buying • Can purchase a car at the end of a lease for amount = residual value • Residual Value – Estimated value of the car

48. E. Leasing 436 x 24 = 10,464 + 500 + 11,000 = 21,964 Buying 728 x 24 = 17,472 + 3,100 = 20,572 21,964 – 20,572 = 1,392 Buying Cheaper

49. F. Leasing 623 x 48 = 29,904 + 19,050 + 995 = 49,949 873 x 48 = 41,904 + 3,800 = 45,704 – 49,949 = 4,245 leasing more

50. Costs of Operating Cars • Insurance • Gas • Oil • License and Inspection Fees • Tires • Repairs • Garage Rent • Parking Fees • Taxes • General Upkeep