finance chapter 9

A buyer is considering a house with a PITI of $2,600/month. The buyer has credit card payments of $250/month, student loans of $200/month, car payments of $350/month, and a cell phone bill of $50/month. What must his/her annual income be in order to qualify for a loan with a total debt ratio of 43%? - $85,116.28 - $89,302.33 - $94,883.72 - $96,279.07

$94,883.72

A homeowner plans to refinance his/her house. He/she will pay $1,880 to refinance, and the mortgage payment will drop by $65/month. The term of the new mortgage is 20 years. The new interest rate is 5.25% Using TVM break-even, how many months must the homeowner stay in the house to break even on the refinancing? - 30 days - 31.0 months - 27.5 months - 30 years - 68.2 months

31.0 months

Be sure you review the sample problems found in the word doc in Module 9 before attempting the last three questions. A bank offers you a thirty year $150,000 mortgage at 6.5% with two points payable at closing. The monthly payment is $948.10. What is the effective interest rate on this loan? - 6.4% - 6.5% - 6.6% - 6.7% - 6.8%

6.7%

What is a disadvantage of using an adjustable rate mortgage (ARM) compared to a fixed rate mortgage? - a) If interest rates rise, ARM interest rates will also increase after the lock in date. - b) If interest rates fall, ARM interest rates will decrease after the lock in date. - c) Initial interest rates for ARMs are higher than fixed rate mortgages. - d) Your mortgage payments (principal and interest) are not fixed for the term of the loan with an ARM as they are with a fixed rate mortgage. - Answers a and d are both disadvantages.

Answers a and d are both disadvantages.

Which of the following monthly payments go to an escrow account? - Principal - Interest - Property taxes - Homeowners insurance - Answers c and d are correct

Answers c and d are correct

A common advantage associated with home ownership is Correct! - Appreciation of the house's value over long periods of time - Ease of mobility - Limited financial risks - Low initial costs

Appreciation of the house's value over long periods of time

Refer to the web work. Using the assumptions provided, how much home can you afford? Note: The website changes answers as interest rates move, so pick the closest answer. - Around $210,000 - Around $240,000 - Around $260,000 - Around $280,000

Around $240,000

Bill and Hillary each buy a house and take out a $100,000 loan. His house is in New York and her house is in Washington D.C. Bill takes out a conventional 30 year fixed rate mortgage, and Hillary opts for a conventional 15 year fixed rate mortgage. Which of the following correctly summarizes how Bill's mortgage is different from Hillary's (all other things being equal)? - Bill's 30 year mortgage has a higher interest rate, lower monthly payments and higher overall interest payments. It builds equity more slowly than Hillary's mortgage. - Hillary's 15 year mortgage has a higher interest rate, higher monthly payments and higher overall interest payments. It builds equity more slowly than Bill's mortgage. - Bill's 30 year mortgage has a lower interest rate, lower payments and lower overall interest payments. It builds equity more quickly than Hillary's mortgage. - None of the answers are correct

Bill's 30 year mortgage has a higher interest rate, lower monthly payments and higher overall interest payments. It builds equity more slowly than Hillary's mortgage.

Assume you receive the following mortgage: Amount borrowed = 150,000 Annual interest rate = 7% Term = 30 years What is the monthly payment and how much of the payments in year 5 go toward interest? - Monthly payment = $997.95 Amount of interest year 5 = $10,096.78 - Monthly payment = $997.95 Amount of interest year 5 = $11,988.89 - Monthly payment = $997.95 Amount of interest year 5 = $9,961.03 - Monthly payment = $972.99 Amount of interest year 5 = $10,398.74 - Monthly payment = $972.99 Amount of interest year 5 = $13,932.15

Monthly payment = $997.95 Amount of interest year 5 = $9,961.03

Which of the following statements is FALSE? - Mortgage interest on a primary residence is fully deductible for mortgages up to $1 million - Points paid on a new mortgage are fully deductible in the year incurred - Points paid on a refinancing are fully deductible in the year incurred - In most cases, interest on a home equity loan is fully deductible in the year incurred

Points paid on a refinancing are fully deductible in the year incurred