Personal Finance Final
Why is purchasing a new car online not as efficient as buying a new car at a dealership?
Test driving, questions, delivery promises
Explain how stronger economic conditions affect the value homes
^^^^^ vise versa
Why is the reputation of the school system in the area of the home where you are buying important?
children & resale value
What is the responsibility of the insurance company that sells you the policy? What is the relationship between insurance claims and premiums paid by policy holders?
cover claims as described by policy. insurance price reflects price of claims in policy
Describe some techniques that car sales people might use in negotiating the price of the car. What should you be aware of at "no-haggle" dealerships?
1. They will set car price much higher than expected price 2.No haggle=set price for car
what are the two financial components you must consider before purchasing a home? Why should you consider them?
1. down payment 2. monthly mortgage payment so you can focus on a house within your budget.
List some possible sources of personal loans. What precautions should be taken with loans from family members?
-credit unions, saving and loans associations, commercial banks, finance companies, family & friends. -no loans from family because it could ruin relationship
Discuss the two ways financial institutions might define equity to set credit limits. What happens if you default on a home equity loan?
-equity investments; payments including down payments and monthly payments on principal. -market value; market value of home-mortgage balance. If you default they can claim your house to pay off loan.
What does the personal loan process involve?
1. Application 2. Loan contract negotiation 3. Interest rate negotiation
List the steps in buying a car. What financial criteria should be considered? Discuss each briefly.
1. Determine the type of car you need. 2. Determine the price you are willing to spend on this car 3. Shop for financing 4. Research car 5. Go to lot ( price, trade-in, financing)
What is your first task when considering buying a home? why is this step important? How can a real estate broker help you?
Compare existing homes in your area. Lets you measure cost of buying one vs renting one. Real estate broker can help assess homes for financial situation
What is simple interest rate? What information is needed to compute it? What information is contained in a loan repayment schedule.
Computed as a percentage of the existing loan amount. Interest rate and maturity are used to compute it. Loan repayment schedule gives you payment amount of each month, dollar of payment applied to principal, dollar of payment applied to interest, and outstanding principal balance after payment.
How are interest rates calculated for the two types of home equity loans? Why do borrowers prefer home equity loan to other loans?
Interest rates on home equity loans change periodically. Borrowers prefer home equity loans because their interest rates are lower because the home serves as collateral for a home equity loan
What are closing costs? List and briefly describe the different closing costs you might incur when applying for a mortgage.
Loan application fee, organization fee, points, appraisal fee, title search and insurance.
What is the main factor in determining a home resale value? How can you predict a home's resale value? Who pays commission when a home is sold?
Location, comparing, the seller pays real estate broker's commission.
Once you have reduced your list of three or four homes down to one home, what is your next step? Should you offer the price the seller is asking? Describer how you would conduct a market analysis of the home?
Make an offer based on market analysis. Broker, square footage, etc.
What are the costs of renting a home?
rent, security deposit, renters insurance
What are the advantages and disadvantages of leasing a car? Give some advice for someone considering leasing.
Advantage: no down payment and car can be returned at the end of lease. Disadvantages: Responsible for maintenance, extra charges, insurance. Make sure you read entire contract before signing
What should you consider when determining an affordable down payment and monthly mortgage payments?
Assets, cash flow, and liquidity
What is the purpose of insurance? What is meant by the term liability? How can individuals benefit from insurance?
Protect individuals against potential financial losses or liability. To maintain existing level of wealth. Liability means you pay for damages you caused. Know personal assets are protected and receive benefits
What should be the first step in financing a purchase of a car? Aside from the interest rate, what two factors will have the largest impact on the size of your monthly payment?
Determine the amount of monthly payments you can afford (loan amount and maturity)
Why may a weak economy cause the limit on your home equity line of credit to decline? Why may a strong economy cause the limit on your home equity line of credit to rise?
During a weak economy, the valuation of a home tends to be relatively low because the demand for homes is low under these conditions. Credit limit is influenced by the valuation of the home so credit limit is lower during a weak economy when the home prices are lower During a strong economy, the valuation of a home tends to be strong because demand for homes is high under these conditions. Credit limit on a home equity loan is influenced by valuation of home is high under these conditions so credit limit is higher during strong economy when home prices are higher.
List the criteria you should use when selecting a home.
Everything
How can borrowers enjoy tax saving by a home equity loan? How are these tax saving computed?
Interest paid on a home equity loan of up to $100k is deductible from tax income. Interest paid x marginal tax rate
What is home equity? Describe how home equity loans work.
Market value of home-debt on home. It's a line of credit that allows the homeowner to borrow up to a certain credit limit.
List the three things that determine the amount of the monthly mortgage payment. Explain how each affects the payment.
Mortgage amount (larger mortgage=higher payment), interest rate (higher interest rate=higher payment), & maturity of loan (longer maturity=lower payment)
How do lenders protect their interest in a home? Describe two government-backed home loan programs.
Requiring a down payment and home to be collateral. FHA & VA.
Describe the two components of liability coverage in an auto insurance policy.
bodily injury=injuries that you cause property damage=when you damage property with car
What is risk? What is risk management? How does insurance fit into risk management?
can cause fatal loss. risk management is how to protect against risk. with that is insurance and what version you want.
List and briefly discuss factors that will affect your auto insurance.
car value, repair record, age, gender, milage, driving record, location, discounts, school
Who extends student loans? What are characteristics of student loans?
The federal government or financial institutions. Provided at interest rates subsidized by the government. Payment isn't required until student enters work force.
How does the maturity of a loan affect the monthly payments? What should you consider when selecting the maturity?
The longer the maturity the lower the monthly payments & vise versa. Select shortest maturity while still maintaining liquidity.
What information must borrowers supply to lenders in the loan application process? Why is this information important to lenders?
a personal balance sheet and a cash flow statement. they can see if they can pay for the loan
Explain how collateral works. Do all loans have collateral? What is the relationship between collateral and interest rates?
any asset that is purchased with the loan and backs up the loan. Not all loans have collateral. Interest rate depends on the loan you take; unsecured vs. secured.
How does medical coverage under an auto insurance policy work? Why is medical payments coverable valuable even if you have a good health insurance plan?
covers only insured auto mobile and medical bills of injured. Insurance would not pay if driving someone else car. medical is good because health wouldn't cover non family.
Describe collision and comprehensive coverage. Is this type of coverage required by most state? Who may require this type of coverage?
damages against your car (wreck or fire/flood/theft). Car loan providers may require this.
Describe some costs of buying a home. Are there potential tax savings associated with buying a home?
down payment, mortgage payment, opportunity cost, property taxes, insurance, closing costs, cost of utilities. Mortgage interest, property tax, and closing costs are tax deductible.
Describe the characteristics of a fixed-rate mortgage to an adjustable-rate mortgage.
fixed-rate: fixed interest rate 15-30 years adjustable-rate: interest rates are tied to market interest rates and can change
What is the purpose of the annual percentage rate measurement? Could lenders with the same interest rates report different APR's?
for individuals to compare loan offers by different lenders. They could have different APR's because it calculates interest rate and other fees on loans
Describe the features of graduated payment and balloon payment mortgages.
graduated: low then get higher balloon: lower payments and then one big payment
Why do insurance costs and taxes vary among homes?
high the more expensive vise versa, higher for high risk, property tax=home value percentage, Taxes vary price, locations etc.
Why does the value of a home depend on the demands for homes? What factors influence the demand for homes?
industries opening and closing, zoning, location
Why are loan payments under the simple interest method usually lower than loan payments under the add-on interest method?
interest is calculated on the remaining balance so the interest payments decrease and principal payments increase as the loan matures. Interest payments stays the same throughout the loan even though the principal has decreased.
Explain the difference between a 10% rate charged on a payday loan and a 10% rate charged by a bank on a personal loan.
the rate by the banks is an annual rate, the payday loan is based of the amount of days borrowed
What does it mean if a loan is amortized? What do the loan payments represent?
it gets paid back with equal loan payments with interest. The loan payments mean that the more you pay the lower the interest gets but the more money you send to pay off the rest
What is an amortization table? What does each mortgage payment represent?
monthly mortgage based on mortgage amount, fixed interest rate, and maturity. Each payment goes to interest and principal.
What is mortgage refinancing? Are there any disadvantages to refinancing?
paying off old mortgage with a new mortgage that has a lower interest rate. Closing costs & if refinancing is available
Describe the two types of financial responsibility laws most states have. Are these laws always effective?
show proof of auto insurance when car is registered. not effective because can cancel. auto insurance when in accident. Can loose drivers license but doesn't have to pay.
What information is included in a loan contract? How is the amount of the loan determined?
the amount of the loan, the interest rate, the maturity, and the collateral. Amount is determined by lender based on what they think you can repay
What do policy limits of 25/20/25 mean? Do you think the minimum amounts of liability insurance required by your state are suitable for all drivers?
the insurance company will pay for 25k for bodily injury for each injured, 50k for all bodily injury, and 25k for property damage. Minimum is not suitable for all drivers.
How are payments calculated under the add-on interest method?
the loan amount and interest rate are added together and divided by the number of payments to determine the amount of the monthly payment
What is the intent of no-fault insurance? How does no-fault insurance generally work? What is the disadvantage?
to avoid costly court battles with blame. Pays for direct costs. penalization is not fair.
How do price, convince of the location ,and maintenance affect your home buying decision?
travel time, budget, bills for repairs (new vs old)
What is the insurance underwriters? What is the role of insurance agents? Describe the two different types of insurance agents
underwriter=calculates risk of policies to determine charge for premiums. captive agents=particular company independent agents=many different companies
Explain how to a weak economy affects the values of homes
when economy declines homes value declines. domino effect on everything and everyone.
What are your responsibilities as a cosign to a loan? What are potential consequences of failing to live up to your responsibilities as a cosigner?
you are responsible it they do not pay the loan. If not paid the lender can sue or freeze assets