Chap 9 quiz

Many locations require that renters be paid interest on their security deposits. If you have a security deposit of $3,700, how much would you expect to receive in interest per year at 3 percent?

$3,700 × 0.03 = $111

Condominiums usually require a monthly fee for various services. At $365 a month, how much would a homeowner pay over a 10-year period for living in this housing facility?

$365 × 12 × 10 = $43,800

You estimate that you can save $12,800 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for five years at 8 percent?

FV= Inital savings × Future value factor $12,800 × 1.469 =$18,803.20

In an attempt to have funds for a down payment, Jan Carlson plans to save $3,900 a year for the next five years. With an interest rate of 5 percent, what amount will Jan have available for a down payment after the five years?

FV=$3,900 × 5.526 =$21,551.40

Ben and Carla Manchester plan to buy a condominium. They will obtain a $246,000, 20-year mortgage at 8.0 percent. Their annual property taxes are expected to be $1,956. Property insurance is $720 a year, and the condo association fee is $255 a month. Based on these items, determine the total monthly housing payment for the Manchesters.

Monthly mortgage payment=Mortgage factor × Mortgage amount in thousands =$8.36 × 246 =$2,057.00 Monthly property taxes=Annual taxes / 12 =$1,956 / 12 =$163.00 Monthly property insurance=Annual property insurance / 12 =$720 / 12 =$60.00 $2,057.00 + $163.00 + $60.00 + 225 = $2,535

Which mortgage would result in higher total payments? Mortgage A: $1,180 a month for 30 years Mortgage B: $820 a month for 6 years and $1,250 for 24 years

Mortgage A: Total payments=$1,180 × 360 months =$424,800 Mortgage B: Tota payments=($820 × 72 months) + ($1,250 × 288 months) =$59,040 + $360,000 =$419,040 Mortgage A has higher total payments than Mortgage B.

Kelly and Tim Browne plan to refinance their mortgage to obtain a lower interest rate. The Browns will reduce their mortgage payments by $132 a month and incur closing costs of $2,240 as a result of refinancing. How long will it take them to recover the cost of refinancing

Recovery time=Refinancing cost / Monthly savings =$2,240 / $132 =17.0 months

Assume an after-tax savings interest rate of 5 percent and a tax rate of 28 percent. (a) Calculate the total rental cost and total buying cost. (b) Based on the cost criteria, would you recommend buying or renting?

rental cost= rent + insurance + interest lost Buying cost= Mortgage payments + Insurance Taxes, insurance, maintenance + Interest lost on down payment, closing costs + Growth in equity + Annual appreciation + Tax savings for mortgage interest + Tax savings for property taxes

If an adjustable-rate 30-year mortgage for $140,000 starts at 4 percent and increases to 5.5 percent, what is the amount of increase of the monthly payment?

140 × $4.77 = $667.80; 140 × $5.68 = $795.20; $795.20 - $667.80 = $127.40; or, $5.68 - $4.77 × 140 = $127.40