PF 5- Overview of Loans, Mortgages, Other Loans, & Rent or Buy-11/27/17(Mon.)- Q2: Loans

PF 5- Sec. 3: What is the first step in applying for financial aid?

- Talk with your financial advisor. - Complete the FAFSA. - Apply to a college. - Calculate the cost of college. answer: - Complete the FAFSA.

P5- Sec. 1: If the principal on one loan is $1,000 more than another loan, the total cost of the loan is $1,000 more.

- True - False answer: - False

PF 5- Q 2: The loan period does not affect the total cost of the loan.

- True - False answer: - False

PF 5- Sec. 2: A traditional loan has a variable interest rate.

- True - False answer: - False; 'fixed' interest rate

PF 5- Q 2: A student loan is financial aid, but the money will need to be paid back once you leave college.

- True - False answer: - True

PF 5- Sec. 3: You should look at the APR when comparing car loans.

- True - False answer: - True

PF 5- Sec. 4: One upfront cost of renting an apartment is the security deposit.

- True - False answer: - True

PF 5- Sec. 4: The purpose of a lease is _____.

- to list all expenses you will have when renting - for applying for an apartment - to protect both the renter and the property manager - to get a credit report to show you will be a trustworthy renter answer: - to protect both the renter and the property manager

PF 5- Sec. 2: Match the name of the loan type with the correct description. 1. the most popular mortgage that has a fixed interest rate and a loan period of thirty years 2. a loan with an initial fixed interest rate that then becomes variable 3. a short-term loan with low interest rates; when the term is up, the entire balance of the loan is due 4. FHA and VA loans

- traditional mortgage - government-backed mortgages - ARM - balloon mortgages answer: 1. traditional mortgage 2. ARM 3. balloon mortgages 4. government-backed mortgages

character

how responsible you have been in the past with credit; information from your credit report

scholarship

money for college that you are not expected to repay; offered to students who satisfy certain criteria

loan repayment period

the time it will take to repay the loan

home equity

the value invested in a home; the amount owed for the home subtracted from the total value of the home

lease

to give temporary possession to another individual

capital

your net worth; the value of the items you own and the cash you have available

PF 5- Q 2: What are the continuing costs of this apartment? Security Deposit-$1,000 Application Fee-$25 First Month's Rent-$850 Electricity-$80 per month; $40 to connect and $100 deposit Telephone-approximately $60 per month; $40 to connect Water-$35 per month; a deposit of $50

- $1,225 - $1,025 - $2,105 - $1,875 answer: - $1,025

PF 5- Sec. 2: What is the total monthly payment? Principal Per Month- $800 Interest Per Month- $140 Property Tax Per Year- 2 percent of the value of the house ($150,000) Home Insurance Per Year- $520 PMI Per Month- $50

- $1,510 - $1,760 - $990 - $1,283.33 answer: - $1,283.33 150,000/0.02= 7,500,000 [7,500,000]-Property Tax 7,500,000/12=625,000 [625,000]-Monthly payment 520/12= 43.33 800+140+625,000+43.33+50= 626,033.33

PF 5- Q 2: What is the total monthly payment for this mortgage? Principal Per Month-$980 Interest Per Month-$105 Property Tax Per Year-1% of the value of the house ($150,000) Home Insurance Per Year-$360 PMI Per Month-$45

- $980 - $4,680 - $1,085 - $1,285 answer: - $1,285

PF 5- Q 2: Amber asked her dad to co-sign her loan. If she makes a late payment, what may happen?

- A late notice will be sent to her dad. - It may be reported on her dad's credit report. - Amber's credit score will decrease to 0. - Her dad will not be able to obtain a loan at that bank. answer: - It may be reported on her dad's credit report.

P5- Sec. 1: Which of the following loans will have a higher total cost?

- A loan for $5,000 at 3.5 percent over a loan period of four years. - A loan for $5,000 at 3.5 percent over a loan period of six years. answer: - A loan for $5,000 at 3.5 percent over a loan period of six years.

PF 5- Q 2: Jamal tried to apply for a mortgage. However, he was turned down for the loan because the loan officer noticed that he had made late payments on his credit card and he had not made payments on a loan. What questions should he have asked himself before deciding to buy a home?

- Do you have enough money saved up to cover two to three months of mortgage payments in case you lost your job? - Do you have a steady income and stable job? - Do you have a good credit report and credit score? - Do you have enough money saved for a down payment and closing costs? answer: - Do you have a good credit report and credit score?

PF 5- Sec. 4: Jake is thinking of buying a house. What's the most important question he should ask himself?

- Will I be accepted for a loan? - How much does it cost to replace a water heater? - What type of maintenance will I need to do? - Am I financially ready? answer: - Am I financially ready?

PF 5- Sec. 3: Choose all that apply. Select each type of financial aid.

- grants - home equity loan - scholarships - student loans - personal loan answer: - grants - scholarships - student loans

PF 5- Sec. 3: The type of loan that allows people to borrow money from the amount invested in their house is a _____.

- home equity loan - financial aid - mortgage - home improvement loan answer: - home equity loan

PF 5- Q 2: Serena would like to calculate the total cost of a car loan. She should _____.

- multiply the amount of the loan by the APR - use this formula: P x (J / (1 - (1 + J)^N)) - use an online calculator or the formula: P(1+R/12)^N - call a bank and talk to a loan officer answer: - use an online calculator or the formula: P(1+R/12)^N

PF 5- Sec. 4: Choose all that apply. Select all of the ongoing costs associated with renting.

- rent payment - security deposit - utility bills - homeowner's insurance - renter's insurance answer: - rent payment - utility bills - renter's insurance

PF 5- Q 2: Choose all that apply. The mortgage payment includes___________.

- taxes - principal - interest - escrow - PMI - homeowner's insurance answer: - taxes - principal - interest - PMI - homeowner's insurance

PF 5- Q 2: A loan officer will use _____ to determine if you will be approved for a loan.

- the four Cs of lending - the formula, P x (J / (1 - (1 + J)N)) - debt-to-income ratio - a lease answer: - the four Cs of lending

ARM

Adjustable Rate Mortgage; a mortgage that has a fixed rate for a certain amount of time and then has a variable rate that changes periodically

FAFSA

Free Application for Federal Student Aid; an application to obtain financial aid such as grants or student loans

PMI

Private Mortgage Insurance; insurance you must pay on most loans when you make a down payment of less than 20 percent

PF 5- Sec. 4: Josh has a stable job and makes $1600 per month. Does he have enough to afford the rent?

Security Deposit-$500 Application Fee-$10 First Month's Rent-$550 Parking (optional garage)-$30 Pet Fee-$100 deposit+$25 per month Electricity-included in the rent Telephone-approximately $36 per month; $40 to connect Water-$26 per month; a deposit of $50 -yes -no answer: - no Upfront costs= $500+$10+$550+$40+$50 Total upfront costs= $1,150 Spend less than 30% .30x$1,600=$480 Spend less than $480 on rent. Rent for this apartment is $550, you still would not be able to afford it because you'll still have t pay for phone, water, and other utilities.

PF 5- Sec. 4: Monica graduated from high school this year and has a steady job. She feels ready to move into her own space and has $1,200 in savings. Does she have enough for a down payment to rent this apartment?

Security Deposit-$500 Application Fee-$10 First Month's Rent-$550 Parking (optional garage)-$30 Pet Fee-$100 deposit+$25 per month Electricity-included in the rent Telephone-approximately $36 per month; $40 to connect Water-$26 per month; a deposit of $50 -yes -no answer: - yes Upfront costs= $500+$10+$550+$40+$50 Total upfront costs= $1,150 Spend less than 30% .30x$1,150=$345 Spend less than $345 on rent. Rent for this apartment is $550, you still would not be able to afford it because you'll still have t pay for phone, water, and other utilities.

PF 5- Q 2: Use the following chart to explain how the loan repayment period affects the total cost of the loan. Loan Repayment Period Loan 1: Principal-$5,000 Interest Rate-6.47% Monthly Payment-$98 Loan Repayment Period-5 years Total cost of the loan-$5,866 Loan 2: Principal-$5,000 Interest Rate-6.47% Monthly Payment-$57 Loan Repayment Period-10 years Total cost of the loan-$6,804

Writer: Since both loans had the same principal and interest rate; they both had different monthly payment, loan repayment period, and cost of the loan. The reason for this is that someone borrowed money and waited five years to repay back the loan. And because of that the loan was also raised, meaning that you'll have to pay more money then before. If you payed back the loan on time, you wouldn't have to worry about the money being raised up - waiting for you to pay back the fine.

PF 5- Sec. 4: List at least three questions you should ask yourself to make sure you are ready to rent.

Writer: 1. Do you have enough money and income to pay for all the costs? 2. Is the place you can afford safe? 3. Do you have enough money saved up to cover two to three months rent in case you lose your job?

PF 5- Sec. 2: List at least three of the costs that make up a mortgage payment.

Writer: 1. down payment 2. closing costs 3. taxes 4. interest 5. insurance

P5- Sec. 1: In one or two sentences, describe how a person can calculate his monthly payment for a loan.

Writer: How to calculate monthly payment: Monthly Payment= rP/(1-91+r)^-n) P= principal, the initial amount of the loan r= monthly interest in decimal form, or APR/12 n= loan period in number of months To calculate a person's monthly payment; he/she will have to find r (monthly interest in decimal form, or APR/12) and divide the percent by 12 to get the answer. Once you get the answer for "r", you'll need to find the monthly payment. To that you'll need to multiply "r" by P and divide it by (1-(1+r)^-n). Once you find the monthly payment you'll need to multiply that by the number of months you worked per year to get the final answer.

PF 5- Sec. 3: What can you do to figure out how much you can afford when buying a car?

Writer: The total amount you pay on a car depends on the price of the car, the APR, and the loan period.

title

a certificate indicating ownership of property

lease

a contract to lend property to another for a specific amount of time and for a certain amount of payment

VA loan

a government-backed loan for veterans

FHA loan

a government-backed loan, which makes it easier for some people to qualify

unsecured loans

a loan in which the individual does not offer collateral; sometimes called personal or signature loans

secured loans

a loan in which the individual offers collateral; if the loan is not paid back as agreed, the individual gives up the collateral to the lender

installment loan

a loan that is repaid in equal monthly payments for a specific period of time

mortgage

a loan used to buy a home

co-signer

a person who signs a loan with another individual

collateral

a piece of property that a person promises to give to the lender if a loan is not paid

balloon mortgage

a short-term mortgage in which small payments are made until the completion of the term, at which time the entire balance is due

capacity

the ability to make payments based on amount of income and other bills

property manager

the person in charge of renting an apartment or other rental property; sometimes called a landlord

rent

to take possession of and use property by paying a set amount

grants

money awarded to a variety of students that does not need to be repaid

financial aid

money used to support students with the costs of higher education

PF 5- Sec. 3: Choose all that apply. Which of these factors should you consider when deciding whether to lease a car or buy one with a car loan?

- additional costs for damages to the car - monthly payments - mileage restrictions - cost of fuel answer: - additional costs for damages to the car - monthly payments - mileage restrictions

PF 5- Q 2: A short-term mortgage in which small payments are made until the completion of the term, when the entire balance is due, is _____.

- an ARM - a balloon loan - an escrow account - PMI answer: - a balloon loan

PF 5- Sec. 2: An account with a financial institution used to pay taxes and insurance is called _____.

- an ARM - a balloon loan - an escrow account - PMI answer: -an escrow account

P5- Sec. 1: The difference between a secured loan and an unsecured loan is _____.

- an unsecured loan requires a cash down payment and a secured loan does not - a secured loan requires a co-signer and an unsecured loan does not - a secured loan requires a cash down payment and an unsecured loan does not - a secured loan requires collateral and an unsecured loan does not answer: - a secured loan requires collateral and an unsecured loan does not

P5- Sec. 1: What are the 4 C's of lending?

- capacity, company, character, and co-signer - capital, co-signer, character, and collateral - capacity, capital, character, and collateral - company, capital, character, and collateral answer: - capacity, capital, character, and collateral

PF 5- Q 2: Instead of getting a student loan which needs to be paid back with interest, what are some alternatives to help pay for the costs of college?

- college loans and grants - personal loans and scholarships - grants and scholarships - stewardships and installment loans answer: - grants and scholarships

P5- Sec. 1: If you must apply for a loan, you should _____.

- contact a broker and provide certain loan information - visit a loan officer at a financial institution and complete an application - call your credit card company and answer questions over the phone - run a credit report and send it to a loan officer answer: - visit a loan officer at a financial institution and complete an application

P5- Sec. 1: Ramon took out a car loan with an interest rate of 10 percent and paid $100 in loan application fees. What term describes the amount of interest Ramon will pay?

- down payment - capacity - APR - capital answer: - APR

PF 5- Q 2: Samantha has a loan with an interest rate of 6.67 percent now, but the rate could increase 2 percent next year. What lending term best describes this loan?

- finance charges - fixed rate loan - APR - variable rate loan answer: - variable rate loan

escrow

an account with a financial institution used to pay taxes and insurance

variable rate

an interest rate that may change during the repayment period

fixed rate

an interest rate that remains the same throughout the entire loan repayment period

PF 5- Sec. 2: Choose all that apply. Select each of the factors you should consider when shopping for a mortgage. - APR - interest rate - cost of homeowner's insurance - loan period - fixed or variable rate - property taxes

answer: - APR - interest rate - loan period - fixed or variable rate

PF 5- Q 2: Choose all that apply. Select all the benefits of buying a home. - Property maintenance and upkeep are your responsibility. - The value of the home generally increases over time. - The equity in your home increases. - There are many costs, such as real estate taxes and PMI. - Once the mortgage is paid in full you own the home. - You can make improvements to the place. - It is not easy to move.

answer: - The value of the home generally increases over time. - The equity in your home increases. - Once the mortgage is paid in full you own the home. - You can make improvements to the place.