Ch. 5 Making Automobile and Housing Decisions
Cons of leasing a car
- at the end, you have nothing -Total cost more expensive
Operating Expenses of owning a car?
-Car note -Insurance -Fuel -Tires -Maintenance and repairs -Depreciation
Advantages of leasing a car
-offsets rising new car prices -Can be used as a tax deductible -lower monthly payments -driving a more expensive car for the same monthly payment as busying a cheaper one.. -Minimizing down payment to reserve cash
Guidelines to wise purchasing decisions
1. Research your purchase thoroughly, considering not only the market but also your personal needs and preferences. 2. Select the best item for your needs and preference 3. But the Item after negotiating the best price and arranging financing on favorable terms 4. Maintain your purchase and make necessary repairs promptly
The lease payment calculation is based on four variables:
1. The Capitalized cost of the car 2. The forecast residual value of the car at the end of lease 3. The money factor(similar to the interest rate on a loan) 4. The lease term
Average new car loses? (HINT)
11% when you drive it off the lot 20% in the first year 60% in 5 years
What is the typical Realtors commissions?
5-7%, generally split between buyer and seller agents.
Open-end lease
An automobile lease under which the estimated residual value of the car is used to determine lease payments; if the car is actually worth less than this value at the end of the lease, the lessee must pay the difference.
Professor advises what concerning leasing?(Hint)
Don't
5 costs of homeownership
Down payment
Who was at fault for 2008 housing crisis?(HINT)
Everyone: Originators- Greedy and irresponsible Home Owners= Foolish and dishonest Rating Agencies= Bad at jobs and/or complicit Big Banks- Scheming and arrogant Govenment- Inept with bad priorities Final Investors(often foreign)- over confident
Where do car dealers make their money?(HINT)
Financing, Add-ons, Maintenance and service center.
When you get a mortgage, what type of rate do you want to shop for?(HINT)
Fixed Rate
Why don't you want to take out a loan for too long?(HINT)
It can cause the value of the car to be below the value of the loan......Upside down on the loan
Private Mortgage Interest(PMI), who pays it?(HINT)
Lendee, or the homeowner, does until mortgage is paid down to 78%
If you know you'r going to be moving soon, you should?(HINT)
Rent
First thing to do before, if you finance a car, is?(HINT)
Secure financing.
Depreciation
The loss in the value of an asset, such as an automobile, that occurs over its period of ownership; Calculated as the difference between the price initially paid and the subsequent sale price
Closed-ended lease
The most popular form of automobile lease; often called a walk-away lease, because at the end of its term the lessee simply turns in the car.
Try to keep.... Talk as separate as an issue as possible. (HINT)
Trade ins. Buy the car and sell old car separately. Consider selling it yourself.
Biggest disadvantage of buying a used car?
Unknown mechanical problems...The lemon problem
Don't tell a car dealer? (HINT)
What you can afford to pay. Its none of thier business.
When should you consider refinancing your home? (HINT)
When rates drop(1.5%), and you can recoup your money within 30 months
Down payment
a portion of the full purchase price provided by the purchaser when a house or other major asset is purchased; often called equity
Money factor
the financing rate on a lease; similar to the interest rate on a loan
Loan-to-value ratio
the maximum percentage of the value of a property that the lender is willing to loan
Capitalized cost
the price of a car that is being leased