Chapter 6: Loans and Housing Decisions

Aman is attending school and had a financial emergency. He contacted his school's financial aid office and asked about a subsidized student loan. Aman's school facilitates these loans and determined that Aman qualifies for a $500 loan. Aman is able to repay the loan over the next 12 months while he is still in school. How much interest will Aman pay on this loan? $0 because interest on subsidized loans does not accrue until Aman stops attending school. $25 because the interest rate is 5%. $12.50 because Aman has been making payments on the loan. None of the answer choices are correct.

$0 because interest on subsidized loans does not accrue until Aman stops attending school.

Haley just graduated from college. She accepted a position with a firm at an annual salary of $40,000. Using HUD guidelines, what is the maximum Haley should pay for rent on a monthly basis? $12,000. $4,000. $1,333. $1,000

$1,000.

What is the approximate monthly mortgage payment if the loan amount is $300,000, the annual interest rate is 3%, and the loan duration is 15 years? (Hint: You may need to review time value of money calculations). $1,265. $1,322. $2,072. $2,094.

$2,072.

How much can Jorge afford to spend on a monthly car payment if his excess monthly cash flow is $380, and he expects the following monthly expenses: $45 gas, $90 insurance, and $20 for maintenance and repairs? $75. $225. $380. There is not enough information available to answer this question.

$225.

What will be the monthly payment on a car loan if the purchase price is $18,000, there is no down payment, the loan rate is 4.5%, and the loan duration is 5 years? (Hint: You may need to review time value of money calculations.) $300.00. $335.57. $468.42. $4,100.25.

$335.57.

Ann is thinking about paying points to a lender to obtain a lower interest rate on her mortgage. The loan is in the amount of $350,000. If she pays 2 points, she can reduce the interest rate from 5.25% to 4.50%. How much in loan points must Ann pay to get this deal? $1,000. $1,750. $3,500. $7,000

$7,000

Emily owns a house with a fair market value of $175,000. When she purchased the home she paid $210,000, but that was several years ago. She currently owes $193,000. How much equity has Emily built since she first purchased the house? -$7,000. -$18,000. $7,000. $35,000.

-$18,000.

Izzy just received a credit card offer in the mail. The credit card has an APR of 18%. What is the monthly interest rate that will apply to any unpaid balances on this credit card? Assume 12 equal months. 18.0%. 1.0%. 1.5%. 1.8%.

1.5%.

In a recent survey, U.S. households were asked how they would come up with $2,000 in an emergency. What percentage of those who said they could get $2,000 in an emergency said they would use alternative financial services? 5%. 7%. 11%. 20%

11%.

Timia needs some cash in a hurry. She owns her car outright and is considering a title loan. The lender has told Timia that she could borrow $1,000 for 1 month and the fee would be $100. What is the APR on Timia's loan? Assume 12 equal months. 10% APR. 100% APR. 120% APR. 200% APR.

120% APR.

Susan borrowed money from her credit union using her car as collateral. The monthly interest rate on the loan is 0.2%. There were no other fees associated with the loan. What is the APR of Susan's car loan? Assume 12 equal months. 0.2% APR. 2.0% APR. 2.4% APR. 24.0% APR.

2.4% APR.

What is the APR for a loan that charges $25 to borrow $300 for 14 days? 83.3% APR. 100.0% APR. 166.7% APR. 217.3% APR.

217.3% APR.

What is the APR for a loan that charges 2.4% every 30-day payment period? 29.2% APR. 28.0% APR. 24.3% APR. 19.9% APR.

28.0% APR.

What is the APR for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days? 120% APR. 304% APR. 312% APR. 438% APR.

438% APR.

Which of the following loans has the lowest APR? A line of credit with a 29.9% APR. A payday loan of $220 for a fee of $22 due in 15 days. A deposit advance of $220 for a fee of $11 due in 35 days. An installment loan that charges an interest rate of 2.9% per mont

A line of credit with a 29.9% APR.

An advantage of a line of credit from a bank over an installment loan is that: if the borrowed funds are repaid, then the credit line is still available for future use without having to apply for another loan. it is generally an unsecured loan. the interest rate is competitive with other low-cost forms of credit. All of the answer choices are correct.

All of the answer choices are correct.

Peer-to-peer lending options: facilitate loans between groups of individual investors and individual borrowers. provide competitive loan terms to borrowers that do not have access to conventional loans. are accessed through the Internet and require a borrower to have a credit report. All of the answer choices are correct.

All of the answer choices are correct.

Some individuals facing financial emergencies will attempt to skip certain payments to make other payments. This strategy is generally not helpful because: the individual's credit report and credit score will be tarnished. if income does not increase or expenses do not decrease, then nothing will change in the long run. this will likely lead to higher borrowing costs in the future. All of the answer choices are correct.

All of the answer choices are correct.

Unlike renters, homeowners are required to pay for what common expenses? Replacing appliances. Fixing broken windows. Painting every few years. All of the answer choices are correct.

All of the answer choices are correct.

Which of the following reasons might require you to get a guarantor for a lease agreement? You have a low credit score. You do not have a credit report. You have never rented before. All of the answer choices are correct.

All of the answer choices are correct.

Which of the following will increase wear and tear and decrease your chances of getting 100% of your security deposit back? Hosting parties on a regular basis. Vacuuming twice per year. Letting things stay in the refrigerator for months at a time. All of the answer choices are correct.

All of the answer choices are correct.

Which of the following statements is true? Students receiving financial aid awards may only qualify for one type of federal financial aid. Students receiving financial aid awards may qualify for all three types of federal financial aid and also receive additional financial aid awards from the state or school. Financial aid applications are due before the school year starts and cannot be submitted after the start date. All of the answer choices are true.

All of the answer choices are true.

When searching for a vehicle to purchase, which of the following variables is an important factor in the purchase decision-making process? Reliability. Safety. Cost efficiency. All of the choices are correct.

All of the choices are correct.

Which of the following attributes is associated with renting? Down payment. Application fee. Unlimited privilege to use property far into the future. Tax-deductible monthly expenses.

Application fee

What makes a vehicle a bad investment? As a use asset, car values nearly always decline over time. The quality of cars made today is so low that there is no value in owning a car. The value a car adds to a household's ability to increase human capital is too high to warrant the cost of insurance. It is impossible to justify owning a car if someone has to borrow money for the purchase, which makes cars a bad investment choice.lo

As a use asset, car values nearly always decline over time.

Which of the following lenders will likely provide the lowest interest rate to qualified borrowers? Banks and credit unions. Credit card company. Title loan lender. Retail/store credit card.

Banks and credit unions.

Which of the following types of federal student loans accrues interest (i.e., adds the interest to the loan balance) or allows the student to pay the interest while still in school? Direct subsidized loan. Direct unsubsidized loan. Direct PLUS loan. Both direct unsubsidized and PLUS loans.

Both direct unsubsidized and PLUS loans.

Although most landlords make a tenant pay extra for a pet, which of the following pets tends to be the most acceptable among landlords? Cat. Small dog. Large dog. Alligator.

Cat.

Federal student loans offer which of the following advantages? I. No credit check. II. Lower interest rate. III. Flexible loan repayment. A) I only. B) I and III only. C) II and III only. D) I, II, and III.

D) I, II, and III.

Which of the following types of federal student loans does not accrue interest while the student is enrolled in school (i.e., the federal government pays the interest during that time)? Direct subsidized loan. Direct unsubsidized loan. Direct PLUS loan. Direct consolidation loan.

Direct subsidized loan.

Which of the following forms of federal financial aid must be repaid once the student is out of school for 6 months? Work-study awards. Grants. Direct subsidized loans. None of the answer choices are correct.

Direct subsidized loans.

Which of the following loans requires a lower down payment? Conventional 30-year mortgage. FHA 30-year mortgage. Conventional 15-year mortgage. None of the answer choices are correct.

FHA 30-year mortgage.

Maribelle is looking to purchase a car. She is considering all of her options. She is a college student working 30 hours per week. She has been riding the bus to work and school, but it requires 2 hours per day of transit time to get to work (about 25 miles round-trip). If she had her own car, she could cut this time down to 40 minutes per day. Based on this information, which vehicle choice would be the best for Maribelle? Compact luxury car. Full-size pickup truck. An electric vehicle. Inexpensive compact car.

Inexpensive compact car.

Melba has been shopping for a new car. She has already visited four dealerships where she test-drove six cars. When she went to the fifth dealership, the salesperson asked where else she had been that day. Melba lied and said she was just now starting to look at cars. How did the salesperson know that Melba was lying? The salesperson could tell by looking at the condition of her current car. Car dealerships call each other on a daily basis indicating who has been shopping that day. The salesperson has a unique mind-reading ability. Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars.

Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars.l

Which of the following provides the least expensive alternative to meet an unforeseen financial expense? Money in a savings account. A credit card. A short-term loan until the next pay day. A short-term car loan.

Money in a savings account

Which of the following individuals is in most need of a personal vehicle? Lubor, who lives within walking distance to public transportation in New York City. Nicole, who lives in the suburbs but works in a city 35 miles from her home. John, who is retired and living in a nursing home. Michelle, who is in high school and wants a more convenient way to get to school.

Nicole, who lives in the suburbs but works in a city 35 miles from her home.

Rimi currently earns $2,500 per month. She has the following monthly debt payment expenses: $75 for credit cards, $125 for student loans, and a $235 car payment. She is looking to buy a house. The monthly mortgage, including principal, insurance, and taxes, is $900. Does Rimi meet the FHA housing payments to income ratio guideline? Yes, because her ratio is less than 31%. No, because her ratio is greater than 31%. Yes, because her ratio is less than 43%. No, because her ratio is greater than 43%.

No, because her ratio is greater than 31%.

Rimi currently earns $2,500 per month. She has the following monthly debt payment expenses: $75 for credit cards, $125 for student loans, and a $235 car payment. She is looking to buy a house. The monthly mortgage, including principal, insurance, and taxes, is $900. Does Rimi pass the FHA total fixed payments-to-income ratio requirement? Yes, because her ratio is less than 31%. No, because her ratio is greater than 31%. Yes, because her ratio is less than 43%. No, because her ratio is greater than 43%.

No, because her ratio is greater than 43%.

When you rent an apartment, you are entitled to which of the following? Paid cable and Internet. Quiet times during the day and evening. A refund of your application fee if you are accepted into an apartment complex but decide not to move in. All of the answer choices are correct.

Quiet times during the day and evening.

Which of the following is an illegal lease clause? Forbidding you to have a pet. Forbidding you to have a roommate. Requiring you to pay for normal wear and tear. Requiring you to pay an early lease termination fee.

Requiring you to pay for normal wear and tear.

Which of the following is the most important neighborhood factor that should shape someone's apartment hunting search? Quality of schools. Location of restaurants. Access to movie theaters and other activities. Safety.

Safety.

What options are available for someone who is underwater with her or his home and can no longer make the monthly mortgage payment? Foreclosure. Short sale. Home equity loan. Both a foreclosure and a short sale.

Short sale.

Who is eligible for a federal subsidized loan? Any student with financial need. Undergraduate students with financial need. Parents of an undergraduate student. Both undergraduate students with a financial need and their parents.

Undergraduate students with financial need.

Which of the following purchase strategies will generally generate the lowest cost for someone purchasing a vehicle? Using money from savings to fund the entire purchase. Using a small amount of savings for a down payment and borrowing the remainder. Borrowing 100% of the purchase price. Liquidating high-return stock and mutual fund investment to fund the entire purchase.

Using money from savings to fund the entire purchase.

What is not found in a good faith estimate? Loan type. Title insurance premium. Yard maintenance fees. Loan amount.

Yard maintenance fees.

All of the following are true, except: a fee is required to submit the FAFSA form. parent information, such as income and assets, may be required when completing the FAFSA. the FAFSA can be completed online or submitted by mail. income tax return documents are necessary when completing the FAFSA.

a fee is required to submit the FAFSA form.

Aside from not taking out student loans, the best way to minimize the amount of interest paid on student loans is to: repay them as quickly as possible. consolidate loans. limit borrowing to direct subsidized loans. both repay them as quickly as possible and limit borrowing to direct subsidized loans.

both repay them as quickly as possible and limit borrowing to direct subsidized loans.

Someone who guarantees that a renter will either pay the rent on time or make the payment for the renter is called a: co-signer. tenant. roommate. reletter.

co-signer.

All of the following are benefits of direct consolidation loans, except: only one monthly payment is required. consolidated loans have a fixed interest rate. consolidated loans can be discharged in bankruptcy. All of the answer choices are benefits of direct consolidation loans.

consolidated loans can be discharged in bankruptcy.

Some consumers may not understand the high cost of borrowing in the alternative financial services market and instead focus on the ____________ to justify using alternative financial services. convenience cost fee structure long-term expenditure

convenience

A(n) ______ in the loan interest rate and a(n) ______ in the loan duration will increase the monthly auto loan payment decrease; increase increase; decrease increase; increase decrease; decrease

increase; increase

The interest rate on secured loans is generally _______ the interest rate charged on unsecured loans. lower than higher than about the same as not charged compared with

lower than

When making an automobile purchase decision, you should always attempt to find the vehicle that provides the _______ price and the _______ quality. lowest; lowest highest; highest lowest; highest highest; lowest

lowest; highestde

Insurance that protects the lender in the event that the borrower does not repay the mortgage is called: mortgage insurance. homeowner's insurance. settlement insurance. good faith insurance.

mortgage insurance.

All of the following statements regarding federal student loans are true, except: there is no credit report/score check when applying for federal student loans. federal student loans offer more flexible repayment options compared to private student loans. federal student loans have loan forgiveness programs for those working in public service jobs, and those who have made on-time payments for 10 years. private student loans generally have lower interest rates compared to federal student loans.

private student loans generally have lower interest rates compared to federal student loans.

Collateral is: required for all personal loans. only required if a credit score is not high enough. used with unsecured loans. property that can be seized by the lender if a loan is unpaid.

property that can be seized by the lender if a loan is unpaid.

With an installment loan, the borrower: receives the full amount of money upfront and then makes regular payments to repay the loan and interest. is told how much she or he can potentially borrow, and then using a debit card or checkbook, the borrower can access the money and repay the loan and interest through flexible repayments. can receive a short-term loan from a bank or credit union by pledging an upcoming automatic account deposit, such as a paycheck, as repayment of the loan and fees. can borrow up to a maximum of $100,000.

receives the full amount of money upfront and then makes regular payments to repay the loan and interest.

Money paid in advance to cover the cost of excess damage you might cause while renting is called a(n): reletting fee. application deposit. security deposit. renter's insurance.

security deposit.

All of the following statements are true, except: reliance on credit reports and credit scores often differentiates mainstream and alternative financial service providers. there is a relatively small difference in the total finance charge between mainstream and alternative financial service providers. individuals without credit reports should always first apply to mainstream lenders. individuals with emergency funds are less likely to use high-cost loans.

there is a relatively small difference in the total finance charge between mainstream and alternative financial service providers.

One segment of the U.S. population that is less likely to have a credit card is: retirees. young adults just starting their careers. women. minorities.

young adults just starting their careers.