Chapter 5: Making Automobile and Housing Decisions

Over the life of this mortgage, the interest rate and the monthly payment can be adjusted based on changes in a market interest rate.

Ajustable rate mortgage

Which of the following statements accurately describe the similarities and differences between mortgage bankers and mortgage brokers?

Although mortgage brokers often appear to work on behalf of their borrowing customers, they are ultimately paid by the mortgage lender. Mortgage bankers lend their own money to borrowers, while mortgage brokers have relationships with a large number of lenders. Many mortgage bankers ultimately sell the mortgages that they create.

This item in the lease contract is calculated as the total price of the leased vehicle, including its negotiated cost and any applicable fees and taxes.

Capitalized cost

Several financial or economic factors are relevant to the rent-or-buy decision. From the following list, identify the financial or economic factors that should be considered when performing this analysis

Current and expected future housing prices• Current and expected future mortgage interest rates• Expected changes in home values over time• Current and expected future housing-related tax deductions

This refers to the loss in the value of an asset that occurs due to the wear and tear of the asset over a period of time.

Depreciation

This mortgage is characterized by a constant interest rate and constant monthly payments over the life of the loan.

Fixed rate mortgage

This refers to the situation in which a homeowner is unable to make the principal and interest payments on his or her mortgage, so the lender can seize and sell the property as stipulated in the terms of the mortgage contract.

Foreclosure

This insurance policy protects the mortgage lender from a default by its mortgage borrower, and it is typically required when the borrower uses a down payment that is less than 20%

Private mortgage insurance

This is the price at which a lessee can purchase his or her leased car or other asset of the end of the lease period.

Purchase option

This agreement, which is used to purchase a car, details the offering price and all conditions of the offer; when the buyer and seller sign it, it establishes the terms of the legally binding transaction.

Sales contract

This is the popular name given to a vehicle manufacturer's suggested retail price (MSRP), which is posted on the vehicle's window

Sticker price

How should you decide whether to buy or to lease a vehicle?

Use a lease-versus-purchase worksheet to identify and compare the total costs of leasing and purchasing and select the method that minimizes both your total cash outlay and your opportunity costs. Relate the advantages and disadvantages of leasing and purchasing to your personal situation and decide which financing alternative is better for you at the current time.

This loan guarantee is offered by a department of the federal government to lenders who make qualified loans to eligible veterans of the U.S. Armed Forces and their surviving spouses.

VA loan guarantee

This mortgage uses 26, rather than 12, payments per year to reduce the total amount of interest paid over the life of the loan and accelerate the repayment of the mortgage loan's principal—compared to an otherwise identical fixed-rate mortgage.

biweekly mortgage

The five types of costs associated with homeownership are: (1) the down payment (2) (blank), including the points required by the lender; (3) the monthly mortgage payment (4) the(blank)and insurance premiums; and (5) the maintenance and operating expenses

closing, property taxes

This type of mortgage typically requires a down payment of 20% of the value of the mortgaged property.

conventional mortgage

This is a deposit made to the seller to express the intent of purchase so that the offer is considered seriously.

earnest money deposit

Mortgage lenders vary in the types and characteristics of the mortgage loans offered. However, virtually every mortgage lender requires a prospective homebuyer to invest some of his or her own money as a down payment. The funds contributed by the homebuyer are called (blank) and result in a loan-to-value ratio that is (blank)

equity, less than 100%

Closing costs include all of the expenses paid by the borrower when the mortgage is (blank)and consist of the down payment, the mortgage points, and appraisal and attorney's fees.

granted by the lender

Homes also provide financial benefits, including serving as a hedge against inflation and a shelter from taxes. The hedge against inflation occurs, because the price of houses generally increase at a rate equal to or (blank) than the rate of inflation, while the tax shelter results from the(blank) of the:

greater, tax deductibility, Property taxes paid on the home

In general, a house's property taxes will (blank) with its assessed value and will vary with the home's location and geographic area. Therefore, the larger and/or more expensive the house, the (blank) the house's property taxes.

increase, greater

This is the maximum percentage of the value of a property that a lender is willing to loan

loan to value ratio

The cost of a house's (blank), which includes its painting, mechanical and plumbing repairs, and lawn-related upkeep, tends to be (blank) for larger and/or older homes.

maintenance, greater

Each monthly mortgage payment consists of both (blank). This can be calculated using a financial calculator or comprehensive mortgage payment tables. The advantage of the calculator over the tables is its ease of preparation and (blank)precision.

principal repayment and interest charges, improved

In general, whenever a buyer's down payment is less than (blank) , the lender will require the borrower to purchase (blank) , which will compensate the lender for the default of the borrower. The premium on this insurance can be added to the borrower's monthly mortgage payments.

private mortgage insurance

Mortgage loans, or loans that use (blank) as collateral, are made by commercial banks, thrift institutions, and mortgage bankers. In addition to these traditional sources, mortgage brokers also solicit borrowers and originate a large volume of these loans. Brokers often place their loans with these traditional mortgage lenders as well as with (blank).

real property, life insurance companies and pension funds

This treatment on your federal and, in most states, state income taxes results in a (blank) taxable income and tax obligation. However, to realize the full value of this benefit, you must.

reduced, itemized your deductions

This refers to the sale of real estate for a price that is less than the balance owed on a loan secured by the property.

short sale