PF Exam 2

rate cap

restricts the amount by which the interest rate can increase or decrease during the ARM terms

full warranty

states that a defective product can be fixed or replaced during a reasonable amount of time

resolving consumer complaints

1) obtain recommendations from friends, family members, and online reviews 2) verify company affiliations, certifications, and licenses 3) understand the sale terms, return policies, and warranty provisions

open dating

describes the freshness or shelf life of a perishable product

implied warranty of merchantability

guarantees that the product is fit for the ordinary uses for which it is intended

implied warranty of title

indicates that the seller has the right to sell the product

impulse buying

involves unplanned purchasing, which can result in financial problems

lease

-a legal document that defines the conditions of a rental agreement -standard forms include conditions you may not want to accept and the fact that it is printed does not mean you must accept it as is

mortgage

-a long-term loan on a specific piece of property such as a home or other real estate -payments are usually made over 10, 15, 20, 25, or 30 years

interest-only mortgage

-allows a home buyer to have lower payments for the first few years of the loan -during that time, none of the mortgage payment goes toward the loan amount -once the initial period ends, the mortgage adjusts to be interest-only at the new payment rate

buy-down

-an interest rate subsidy from a home builder, a real estate developer, or the borrower that reduces the mortgage payments during the first few years of the loan -this assistance is intended to stimulate sales among home buyers who cannot afford conventional financing

peril

-anything that may possibly cause a loss -the reason someone takes out insurance

adjustable-rate mortgage (ARM) or flexible-rate mortgage or variable-rate mortgage

-has an interest rate that increases or decreases during the life of the loan -usually have a lower initial interest rate than fixed-rate mortgages; however, the borrower, not the lender, bears the risk of future interest rate increases

lifestyle

-how you spend your time and money -may seem intangible, it materializes in consumer purchases -every buying decision is a statement about your lifestyle

postpurchase activities

-maintenance and ownership costs are associated with most major purchases -correct use can result in improved performance and fewer repairs

price negotiations

-may be used in buying situations to obtain a lower price or additional features with two vital factors 1) having all the necessary information about the product and buying situation 2) dealing with a person who has the authority to give you a lower price or additional features, such as the owner or store manager

choice of housing

-personal preferences are the foundation of a housing decision, but financial factors may modify the final choice -traditional financial guidelines suggest that "you should spend no more than 25 or 30% of your take-home pay on housing" or "your home should cost about 2 and 1/2 times your annual income

mortgage points

-prepaid interest charged by the lender -each discount point is equal to 1% of the loan amount and should be viewed as a premium you pay for obtaining a lower mortgage rate

insurance

-protection against possible financial loss -allows you to be prepared for the worst -provides protection against unexpected property loss, illness, and injury

renting versus buying housing

-the choice between renting and buying your residence should be analyzed based on lifestyle and financial factors -mobility is a primary motivator of renters, whereas buyers usually want permanence

warranty

a written guarantee from the manufacturer or distributor that specifies the conditions under which the product can be returned, replaced, or repaired

second mortgage or home equity loan

allows a homeowner to borrow on the paid-up value of the property

service contract

an agreement between a business and a consumer to cover the repair costs of a product

implied warranty

covers a product's intended use or other basic understandings that are not in writing

limited warranty

covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs

conventional mortgage

usually has equal payments over 15, 20, or 30 years based on a fixed interest rate

express warranty

usually in written form, is created by the seller or manufacturer and has two forms: the full warranty and the limited warranty

new car warranties

-provide buyers with an assurance of quality. vary in the time, mileage, and parts they cover -coverage of basic parts against defects -power train coverage for the engine, transmission, and drive train -the corrosion warranty, which usually applies only to holes due to rust, not surface rust

home ownership needs

-stability of residence and a personalized living location are important motives of many home buyers -one financial benefit is the deductibility of mortgage interest and real estate tax payments, reducing federal income taxes -a disadvantage is financial uncertainty (obtaining down payment and securing mortgage financing)

used-car warranties

-the FTC requires used cars to have a buyer's guide sticker telling whether the vehicle comes with a warranty, and if so, what protection the dealer will provide -if no warranty is offered, the car is sold "as is" and the dealer assumes no responsibility for any repairs, regardless of any oral claims

comparing financial alternatives

-you may pay cash; most people buy cars on credit -loans are available from banks, credit unions, consumer finance companies, and other financial institutions -many lenders will preapprove you for a certain loan amount, which separates financing from negotiating the car price

payment cap

keeps the payments on an adjustable-rate mortgage at a given level or limits the amount to which those payments can rise

refinance

obtain a new mortgage on your current home at a lower interest rate

negative amortization

means the amount of the home equity is decreasing instead of increasing

comparison shopping

process of considering alternative stores, brands, and prices

reverse mortgages or home equity conversion mortgages

provide homeowners who are 62 or older with tax-free income in the form of a loan that is paid back (with interest) when the home is sold or the homeowner dies

highballing negotiations

when offered a very high amount for a trade-in vehicle, with the extra amount made up by increasing the new-car price

lowballing negotiations

when quoted a very low price that increases when add-on costs are included at the last moment