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