Chapter 7 Personal Finance (Ivy Tech)
small claims court
A special court in which parties may litigate small claims (such as $5,000 or less). Attorneys are not required in small claims courts and, in some states, are not allowed to represent the parties.
The Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.
APY
asset management account
An all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account.
Certificate of Deposit (CD)
An interest-earning deposit that requires the funds to remain deposited for a fixed term. Withdrawal of the funds before the term expires results in a financial penalty.
APR
Annual percentage rate; the annual rate of interest that is charged for using credit
B
If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward interest? A. $180.50 B. $625.00 C. $665.28 D. $805.50 E. $7,500.00
A
If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal? A. $180.50 B. $625.00 C. $665.28 D. $805.50 E. $7,500.00
Savings and loan association (S&L)
a financial institution that traditionally specialized in savings accounts and mortgage loans
Trust
a legal agreement that provides for the management and control of assets by one party for the benefit of another
Open-end credit
a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
legal aid society
a network of community law offices that provide free or low-cost legal assistance
Resolving check credit
a prearranged loan from a bank for a specified amount; also called a bank line of credit
overdraft protection
an automatic loan made to an account if the balance will not cover checks written
APY
annual percent yield describes interest paid to a saving account or certificate of deposit
Simple interest
interest computed only on the principal, without compounding
A drawback of a regular savings account is
low rate of return
Kylie went to a post office to obtain a
money order
Zoe signed the back of her check with the words "for deposit only." She used a(n)
restrictive endorsement
If a check is lost or stolen, you should use a
stop payment order
Capital
the borrower's assets or net worth
Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for?
$238
B
2. (p. 226) Georgina and Henry are looking at houses. Which of the following is correct? A. A "handyman's special" will be set at a higher price than one that is in "move-in condition." B. They should assess the school system in the area they want to live. C. The amount they can afford for housing will be primarily determined by the down payment. D. Their first house should be their "dream house" and contain all the features desired. E. All of these are correct.
D
32. (p. 218) Which of the following is NOT correct? A. Renting is usually less expensive in the short run. B. Home ownership usually has long-term financial advantages. C. Lifestyle and financial factors should be analyzed to determine if you should rent or buy. D. Traditional financial guidelines suggest that your home should cost about five times your annual income. E. Renting offers mobility.
D
72. (p. 232) Yvette has a flexible-rate mortgage that has a maximum monthly increase. This feature is called a(n) A. ARM. B. FHA loan. C. Negative amortization. D. Payment cap. E. VA loan.
B
85. (p. 228) If you are selling your house by owner, you should still enlist the assistance of A. A real estate agent to help with the closing. B. A lawyer or title company to assist with the contract, closing, and other legal matters. C. Your brother-in-law to aid with legal issues of the sale. D. Two of these are correct. E. All of these are correct.
Capacity
One's ability to pay additional debts
Arbitration
Settlement of difference by third-party, decision is binding
Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for?
$50
C
83. (p. 238) Which of the following is NOT correct? A. Alex's daily maintenance and timely repairs around his home should increase his sale price. B. Brenda's new hot tub will probably not increase the selling price more than her recently added storage space. C. Caryn's suggestion to open drapes but keep lights turned off to conserve energy will give her property a positive image. D. Darryl's decision to sell his house "by owner" could save him several thousands of dollars. E. Eric's listing with a real estate agent will provide him with services such as advice on features of his home to highlight.
E
86. (p. 240) Which of the following is NOT correct regarding real estate agents? A. They can provide advice on features of your home to highlight. B. They handle financial aspects of the sale. C. They may include a presentation of your home on various websites. D. They may screen potential buyers to determine if they will qualify for a mortgage for your home. E. They require that you conduct your own showings.
A
91. (p. 228) Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to A. $117,000. B. $122,000. C. $140,000. D. $150,000. E. $162,000.
Which of the following will likely provide the most expensive loans?
A payday loan company
Title insurance
A policy that protects the insured against loss or damage due to defects in title and defines boundaries of property.
Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use?
A savings account
Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a
Certified check
Closed-end credit
credit as a one-time loan that you will pay back over a specified period of time in payments of equal amounts
Finance charge
the total dollar amount you pay to use credit
Rate of return
the percentage of increase in the value of your savings from earned interest; yield
Consumer credit
the use of credit for personal needs (except home mortgage)
Mediation
third party negotiations to resolve a difference (nonbinding)
E
(p. 222) The opportunity to have another person take over rent payments and live in the rental unit is called (a) A. Lease. B. Lessee. C. Lessor. D. Rental agreement. E. Subletting.
A
69. (p. 232) Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n) A. ARM. B. FHA loan. C. Negative amortization. D. Payment cap. E. VA loan.
B
70. (p. 232) Paul is 23 years old and has a small amount to use as a down payment for his first house. He might be eligible for a(n) A. ARM. B. FHA loan. C. Negative amortization. D. Payment cap. E. VA loan.
C
71. (p. 232) Veronica has had a variable-rate mortgage for several years. Unfortunately, the monthly payments have not covered her interest owed. As a result, her home equity is decreasing because of A. ARM. B. FHA loan. C. Negative amortization. D. Payment cap. E. VA loan.
A
73. (p. 233) If you have a mortgage that has fixed monthly payments and a very large final payment, you have a(n) A. Balloon mortgage. B. Buy-down. C. Convertible ARM. D. Growing-equity mortgage. E. Interest-only mortgage.
B
74. (p. 233) If you have an interest rate subsidy from a home builder or real estate developer, you have a A. Balloon mortgage. B. Buy-down. C. Convertible ARM. D. Growing-equity mortgage. E. Interest-only mortgage.
E
75. (p. 233) If you do not pay back any of the loan amount for a portion of the loan period, you have a(n) A. Balloon mortgage. B. Buy-down. C. Convertible ARM. D. Growing-equity mortgage. E. Interest-only mortgage.
B
76. (p. 233) The primary benefit of a home equity loan is A. Its limited availability. B. The deductibility of the loan interest on federal taxes. C. The required monthly payments. D. The use of the home as collateral for the loan. E. None of these is a primary benefit.
C
77. (p. 233) A reverse mortgage A. Is the same thing as a second mortgage. B. Offers a home buyer a home loan with a 30-year payment period. C. Provides older home owners with tax-free income in the form of a loan that is repaid when the home is sold or the home owner dies. D. Two of these are correct. E. All of these are correct.
B
78. (p. 234) During a home purchase closing, you should A. Order an appraisal. B. Pay all closing costs, settle last-minute items, and sign documents. C. Schedule an inspection of the condition of the home. D. Sign documents and pay half of the settlement costs. E. Review zoning laws for the municipality where the home is located.
A
79. (p. 236) Which of the following is the document that transfers ownership of property from one party to another? A. Deed B. Escrow C. Mortgage D. PMI E. Points
B
80. (p. 237) Which of the following is an account used to pay property taxes and home insurance? A. Deed B. Escrow C. Mortgage D. PMI E. Points
D
81. (p. 238) Walt has decided to sell the home he has lived in for 50 years. The house has two bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should A. Exaggerate the size of his yard. B. Keep everything "as is." C. List his house as a three-bedroom. D. Take steps to make the house appear bright and large. E. Underestimate the cost of utilities.
C
82. (p. 238) Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except A. Current mortgage rates. B. Demand in the housing market. C. His original cost. D. Recent selling prices of comparable homes in the area. E. The appraised value of his home.
B
90. (p. 228) 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. If he wants to stop paying his private mortgage insurance, he can request termination of PMI. The current value of his mortgage must be no higher than A. $122,000. B. $126,360. C. $140,000. D. $150,000. E. $162,000.
A
92. (p. 228) 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? A. $1,237.50 B. $1,485.00 C. $2,475.00 D. $3,750.00 E. $7,500.00
Class-action suit
A lawsuit filed by an individual seeking damages for "all persons similarly situated."
Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?
A money market account
Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?
Interest-earning checking account
Fair Credit Billing Act (FCBA)
sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments
Conditions
the general economic conditions that can affect a borrower's ability to repay a loan
E
43. (p. 225) Which of the following is NOT a benefit of home ownership? A. Stability of residence B. Personalized living location C. Deductibility of mortgage interest D. Deductibility of real estate taxes E. Maintenance and costs of repairs and home improvements
C
66. (p. 230) When Smee applied for a loan, he was assured that his rate would not change if he closed within a specific time period. Smee had a(n) ______ on the interest rate. A. amortization B. escrow C. lock D. PMI E. points
D
42. (p. 222) Which of the following expenses is NOT usually recommended or necessary for a tenant? A. Security deposit. B. Utilities. C. Renter's insurance. D. All of these are recommended or necessary. E. None of these is correct.
D
67. (p. 229) Trenton wants to buy a house but can provide only a 10% down payment. He probably will be required to have A. Amortization. B. Escrow. C. Lock. D. PMI. E. Points.
B
33. (p. 222) Which of the following is a disadvantage of renting? A. Renters have fewer responsibilities than home owners. B. Tenants cannot take tax deductions for mortgage interest and property taxes. C. Renters usually do not have to be concerned with maintenance and repairs. D. Taking possession of a rental unit is less expensive than buying a home. E. Renting can be more convenient for those who move frequently.
B
34. (p. 222) Which of the following is an advantage of renting? A. Noise from parties may be monitored closely. B. Renters have fewer responsibilities than home owners. C. Tenants cannot take tax deductions for mortgage interest and property taxes. D. Tenants may be subject to restrictions regarding decorating. E. All of these are advantages of renting.
B
35. (p. 222) Most tenants sign a lease. Which of the following is part of a lease agreement? A. The amount of the down payment. B. The conditions under which the landlord may enter the apartment. C. The interest rate for a lease loan. D. The name and address of the buyer. E. The sale date.
A
37. (p. 222) A legal document that includes information about the due date of monthly rent is called a A. Lease. B. Lessee. C. Lessor. D. Rental statement. E. Sublease.
C
38. (p. 222) The owner/landlord is known as the A. Lease. B. Lessee. C. Lessor. D. Renter. E. Sublease.
B
39. (p. 222) The tenant is the A. Lease. B. Lessee. C. Lessor. D. Owner. E. Sublease.
A
40. (p. 222) This provides the tenant protection from rent increases. A. Lease B. Lessee C. Lessor D. Rental statement E. Sublease
A
41. (p. 222) This gives the landlord the right to take legal action against a tenant for nonpayment of rent or destruction of property. A. Lease B. Lessee C. Lessor D. Rental statement E. Sublease
C
44. (p. 225) Donald wanted to buy a house in the country, so he sought advice from his cousin Evan. Evan explained the advantages and disadvantages of home ownership; however, he had some information incorrect. Which of the following is incorrect? A. An advantage is that Donald can deduct mortgage interest and real estate taxes. B. A disadvantage is that Donald is responsible for maintenance and costs of repairs and home improvements. C. An advantage is that the down payment required is less than the security deposit for a rental. D. A disadvantage is that real estate taxes are a major expense for home owners. E. An advantage is that Donald can paint his house bright purple with green trim to match his college's colors.
A
45. (p. 225) Which of the following is a legal form of ownership in which the owners pay a monthly fee for maintenance of the common areas? A. Condominium B. Cooperative housing C. Manufactured home D. Single-family dwelling E. Apartment Blooms
B
46. (p. 225) Which of the following is a form of housing in which the units are owned by a nonprofit organization? A. Condominium B. Cooperative housing C. Manufactured home D. Single-family dwelling E. Townhouse
B
47. (p. 225) Which of the following is a form of housing in which shareholders purchase stock to obtain the right to live in a unit of the building? A. Condominium B. Cooperative housing C. Manufactured home D. Single-family dwelling E. Townhouse
C
48. (p. 225) Diane purchased her house and had it assembled before it was moved to her lot. She purchased a A. Condominium. B. Cooperative housing. C. Manufactured home. D. Single-family dwelling. E. Townhouse.
E
49. (p. 225) Elaine purchased her living unit in a building with five other separate units. She purchased a A. Condominium. B. Duplex. C. Manufactured home. D. Single-family dwelling. E. Townhouse.
E
50. (p. 225) Paul and Lora built their home. When they researched contractors, they paid attention to all of the following except A. Contractor's reputation and experience. B. Contractor's relationship with suppliers and subcontractors. C. Payment arrangements during construction. D. Time and payment schedules. E. Contractor's property tax payments during construction.
A
51. (p. 225) Frank and Diane want to buy a house. Which of the following do they need before they purchase a house? A. Down payment. B. Home owner's insurance. C. Mortgage interest. D. Mortgage principal. E. Real estate taxes.
E
53. (p. 226) What should a home buyer consider when evaluating a house? A. Zoning laws. B. Location of businesses and future construction projects. C. School system. D. Property values of the community. E. All of these should be evaluated.
E
54. (p. 226) When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except A. Negotiating a settlement price. B. Receiving an offer from a buyer. C. Representing Ingrid at the closing. D. Showing Ingrid's home to potential buyers. E. Home appraisal.
B
55. (p. 226) Jim wants to make an offer to buy an older house. At this point, he should A. Move into the house. B. Set up a home inspection. C. Contact the seller to purchase his lawn tools. D. Close the purchase transaction. E. Sign his mortgage papers.
D
56. (p. 227) Kelly selected a home and submitted an offer to the seller. A. The seller must accept her offer. B. Her offer must have been for the asking price. C. The seller's price is affected by Kelly's need to buy. D. The seller may choose to provide a counteroffer. E. Kelly will receive earnest money when she presents the offer.
B
57. (p. 228) Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer. A. appraisal B. contingency clause C. dual agent D. earnest money E. purchase agreement
A
58. (p. 238) When Nancy buys her house, the mortgage company will probably conduct a(n) A. Appraisal (estimate the value) B. Contingency clause. C. Dual agent. D. Earnest money. E. Purchase agreement.
C
59. (p. 226) Opal is a real estate agent who represents the buyer as well as the seller. In some states, the buyers are required to sign a disclosure acknowledging that they are aware that Opal is working as a(n) A. Appraisal. B. Contingency clause. C. Dual agent. D. Earnest money. E. Purchase agreement.
D
60. (p. 228) Pauline just submitted an offer on her dream home. To show that she is serious, she also included a(n) A. Appraisal. B. Contingency clause. C. Dual agent. D. Earnest money (portion of price deposited as evidence of good faith) E. Purchase agreement.
D
61. (p. 229) Private mortgage insurance A. Cannot be avoided. B. Is part of all mortgages. C. Is usually required if the down payment is less than 25%. D. Must be terminated automatically when the home owner's equity reaches 22% of the property value at the time the loan was initiated. E. Protects the buyer from financial loss if the value of the home increases.
E
62. (p. 229) Major factors that affect the affordability of your mortgage include all of the following except A. The amount available for a down payment. B. Current mortgage rates. C. Income. D. Length of the loan. E. Size of the home.
A
63. (p. 230) Quinn applied for a loan. He provided information about his finances and the home he plans to purchase. Results of the mortgage calculation included all of the following except A. Expected maintenance costs. B. The home purchase price he can afford. C. The monthly mortgage payment he can afford. D. The mortgage amount he can afford. E. All of these are correct.
E
64. (p. 230) Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called A. Amortization. B. Escrow. C. Lock. D. PMI. E. Points.
A
65. (p. 231) Ricky has a conventional mortgage. He can monitor his interest and principal payments using _____ information. A. amortization B. escrow C. lock D. PMI E. points
E
68. (p. 232) Because Dan served in the army, he should be eligible for a(n) A. ARM. B. FHA loan. C. Negative amortization. D. Payment cap. E. VA loan.
When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?
Life insurance company
Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?
Liquidity
Character
The borrower's attitude toward his/her credit obligations
Collateral
The use of property or savings to secure a loan relates to
Why are some financial service operations referred to as financial supermarkets?
They offer a combination of services from one source.