Finance Chapter 7

True or false: As a general rule, it may be wise to refinance when the interest rates on mortgages drop at least 1 percentage point below your current mortgage rate.

True (Reason:Rates should fall at least 1 percentage point (100 basis points) before you should think about refinancing.)

How long will it take them to recover the cost of refinancing? Refinancing will save $83 a month. Refinancing costs for closing = $1,670. How long to recover the cost of the refinance? $1,670 / $83 = 20.1 months

Kelly and Tim Browne plan to refinance their mortgage to obtain a lower interest rate. The Browns will reduce their mortgage payments by $83 a month and incur closing costs of $1,670 as a result of refinancing.

Mason is applying for a 30-year mortgage with a 5% interest rate. Mason has an annual income of $50,000 and has no additional debt. His estimated monthly property taxes and homeowners insurance is equal to $430. What is Mason's affordable mortgage amount?

MGI = $50,000/12 --> $4,166.6733% max of MGI without other debt = $4,166.67 x 0.33 --> $1,375 Affordable monthly mortgage payment = $1,375 - $430 = $945 Affordable mortgage amount = [($945/5.37) x 1,000] = $175,977.65

According to the video, all of the following is a disadvantage of buying a home, except:It can be difficult to find a buyer that can qualify for a loan to buy your home.The cost of buying a home is greater than the cost of renting a home.It can be hard to maintain ownership of the home.It can be difficult to find a buyer that will pay what your home is worth.It can be hard to move if you buy a home because you must sell the home to someone else

It can be hard to maintain ownership of the home.

$1,237.50

Jordan earns an annual salary of $45,000. If a lender uses 33% of monthly gross income as a guideline for the maximum PITI (principal, interest, taxes, and insurance), what is the maximum mortgage that Jordan can apply for?

Aubrie is going to make a 22% down payment on her house. If her affordable mortgage amount is $212,476.35, what is Aubrie's affordable home purchase price?

$212,476.35/(1 - 0.22) = $272,405.58

all of the following are seller estimated costs, except: Recording fees or transfer taxes Title insurance Appraisal fee Property survey Attorney's fee

Appraisal fee

$1525

Ben and Carla Manchester plan to buy a condominium. They will obtain a $220,000, 30-year mortgage at 5 percent. Their annual property taxes are expected to be $1,800. Property insurance is $480 a year, and the condo association fee is $220 a month. Based on these items, determine the total monthly housing payment for the Manchesters.

$126,360

Brett bought a house five years ago for $150,000. At that time he borrowed $140,000 from his bank. The house is now worth $162,000. The current value of his mortgage must be no higher than --- for him to request termination of his PMI policy.

all of the following are other options to consider when you finance your home, except:

Buy-Backs

The title search fee is paid by the _________ and is designed to ensure that the ___________ can legally purchase the property.

Buyer; buyer

23512-->2,82010= 28,200

Condominiums usually require a monthly fee for various services. At $235 a month, how much would a homeowner pay over a 10-year period for living in this housing facility?

All of the following are true about conventional mortgages discussed in the video, except:Buyers are usually required to make a down payment of approximately 5 to 10 percent.The interest rates on conventional mortgages are higher initially than adjustable mortgages. Each monthly payment is fixed for a set period of time and then they may adjust if the market interest rate has risen.Typically, the length for this type of mortgage is 15, 20, or 30 years. Monthly payments are fixed and the payment for principal and interest will not change over the life of the loan.

Each monthly payment is fixed for a set period of time and then they may adjust if the market interest rate has risen.

the decision to rent or buy a home is an important decision that can affect not only your ________________, but also your _________________.

Financial decisions; quality of life

They should assess the school system in the area they want to live.

Georgina and Henry have a family and are looking at houses. Which of the following is correct?

Interest-only mortgage

If you do not pay back any of the loan amount for a portion of the loan period, you have a(n)

Future value down payment $ $20,125-------------------4,600 x 4.375 (see table) = 20,125

In an attempt to have funds for a down payment in four years, James Dupont plans to save $4,600 a year for the next four years. With an interest rate of 6 percent, what amount will James have available for a down payment after the four years?

which of the following is an advantage of renting a home?Individuals can rent a home with a smaller financial commitment than if you were to buy a home.It is easy to move or change homes if you don't like the first home.There is less maintenance associated with renting a home.Individuals can rent a home with a smaller financial commitment than if you were to buy a home, It is easy to move or change homes if you don't like the first home, and There is less maintenance associated with renting a home.Individuals can rent a home with a larger financial commitment than if you were to buy a home and There is less maintenance associated with renting a home.

Individuals can rent a home with a smaller financial commitment than if you were to buy a home, It is easy to move or change homes if you don't like the first home, and There is less maintenance associated with renting a home.

Paisley has an annual income of $54,600 and has additional debt of $350. Her estimated monthly property taxes and homeowners insurance is equal to $390. What is Paisley's affordable monthly mortgage payment?

MGI = $54,600/12 = $4,55038% max of MGI with other debt --> $4,550 x 0.38 --> $1,729 Affordable monthly mortgage payment --> $1,729 - $350 - $390 = $989.00

Annual interest $36

Many locations require that renters be paid interest on their security deposits. If you have a security deposit of $1,800, how much interest would you expect to earn per year at 2 percent?

what is reported at the bottom of the statement? The amount of interest paid in advance The amount owed at closing by both the buyer and seller The amount of the settlement fee The amount of the lender's origination fee The amount of the title search fee

The amount owed at closing by both the buyer and seller

Lease

This provides the tenant protection from rent increases

A: 349,200 B: 45,600 + 301,500 = 347,100 A is the answer

Which mortgage would result in higher total payments? Mortgage A: $970 a month for 30 years Mortgage B: $760 a month for 5 years and $1,005 for 25 years

4 % loan for 30 years = 120,000/1,000 = 120*4.77 (from table ) = $572.40 monthly payment5.5% loan for 30 years = 120,000/1,000 = 120*5.68 (from table) = $681.60 monthly payment Payment increase = $681.60 - $572.40 = $109.20

f an adjustable-rate 30-year mortgage for $120,000 starts at 4.0 percent and increases to 5.5 percent, what is the amount of increase of the monthly payment?

All of the following are true of adjustable-rate, variable-payment mortgages according to the video, except: It is common practice for the lender to adjust the interest rate on a scheduled basis.The down payment for this type of mortgage typically varies.Payment for this type of mortgage may change on a 1, 3, 5, 7, or 10-year schedule.There are no rate caps for this type of mortgage.This type of mortgage has lower initial interest rates but has the potential to have much higher rates and payments in the future.

here are no rate caps for this type of mortgage.