1. Business Math JOHN MALL JUNIOR/SENIOR HIGH SCHOOL

2. Buying a Home

3. A single family home valued at roughly $5,550,000 in Salinas, California.

4. 1. Los Altos, Calif. 1. Los Altos, Calif. Avg. listing price: $1,706,688 Median household income: $149,964 Pct. households $200,000+ income: 43.6% Most Expensive City to Buy a Home

5. Listed For $190 Million, This Is America's New Most Expensive Home For Sale - Greenwich, Conn Most Expensive Home

6.  The total cost of buying a home includes the purchase price, the cost of borrowing money for the purchase price and closing costs.  Most people make a cash down payment, or a percentage of the total cost of the house paid at the time of purchase to their lender.  Some lenders require no down payment; others ask for as much as 30% Borrowing to Buy a Home

7.  The balance of the purchase price (after the down payment) is usually borrowed through a mortgage loan taken with a bank or other lender.  The money borrowed is called the principal.  Interest must be paid on the mortgage loan.  A mortgage gives the lender the right to take the property if the loan is not repaid as agreed.  The length and terms of mortgages vary; 15-20 and 30 year mortgages are common. Borrowing to Buy a Home

8.  Closing costs are fees and expenses paid to complete the transfer of ownership of a home.  Closing costs may range from 3%-6% of the purchase price of a home. Borrowing to Buy a Home

9.  To calculate the amount of loan you need, subtract the down payment from the purchase price.  Mortgage loan = Purchase Price – Down payment  Cash needed to buy a home = Down payment + Closing costs Borrowing to Buy a Home

10.  Jones is buying a home for $74,000. She will make a 20% down payment and estimates closing costs as: legal fees, $950.00; title insurance, $140; property survey, $250.00; inspection, $175.00; loan processing, $84.00; recording fee, $740. What amount of mortgage loan will she need? What amount of cash will she need when she buys the house?  20% x $74,000 = $14,800.00 down payment  $74,000 – $14,800 = $59,200.00 mortgage loan  $950 + $140 + $250 + $175 + $84 + $740 = $2,329.00 closing costs  $2,239.00 + 14,800 = $17,139.00 cash need to buy the house Borrowing to Buy a Home

11.  Marissa is buying a home for $200,000. She will make a 30% down payment and estimates closing costs as: legal fees, $850.00; title insurance, $40; property survey, $150.00; inspection, $75.00; loan processing, $84.00; recording fee, $740. What amount of mortgage loan will she need? What amount of cash will she need when she buys the house?  30% x $200,000 = $60,000.00 down payment  $200,000 – $60,000 = $59,200.00 mortgage loan  $850 + $40 + $50 + $75 + $84 + $740 = $1,929.00 closing costs  $2,239.00 + 14,800 = $17,139.00 cash need to buy the house Borrowing to Buy a Home

12.  Fixed rate mortgage, the same rate of interest is paid for the life of the loan.  Variable rate mortgage, the rate of interest is not guaranteed and may be increased or decreased.  Most mortgages are repaid gradually, or amortized over the life of the mortgage in equal monthly payments. Each payment pays off part of the principal plus the interest due each month. Mortgage Loan Interest Costs

13.  Most of the monthly payment goes to the interest. As time passes, the amount goes to repay the principal increases.  The following table shows the amounts of interest and principal paid in different months on a 30-year, $70,000.00 loan at 9.75% interest. The monthly payment is $601.41 Mortgage Loan Interest Costs

14. Month in Which Payment is Made Payment Breakdown No. 1No. 180No. 358 Interest568.75462.3914.40 Principal32.66139.02587.01 Total Payment601.41 Mortgage Loan Interest Costs

15.  Ashley wants to buy a home that costs $83,000.00 She has 13,000 for the down payment, and her bank will lend her $70,000.00 on 25-year, 8% mortgage. Find Ashley’s monthly payments and the total amount of interest she would pay over the term of the mortgage.  25 x 12 = 300 months  300 months x 540.27 = 162,081 Total Payments  $162,081.00 – 70,000 = 92,081 Interest Paid over the 25 year period Mortgage Loan Interest Costs

16. Buying a Car

17.  The first Japanese car to be manufactured in the US was the Honda Accord in November 1982.  In the year 1925, a Ford automobile would cost only $625.00  The most expensive car ever sold is the 1931 Bugatti Royale Kellner Coup with a price of $8,700,000.00  Over 90% of the car owners admit to singing while they were driving.  Ferrari only builds 14 cars each day. Fun Facts About Cars

18.  Purchase Price – The price negotiated by the dealer and the buyer. The price includes the car and any options installed by the dealer.  Sales Tax – Tax computed on the purchase price.  Registration Fees – License and title transfer fees.  Non-taxable Items – Extended warranties that may be exempt from sales depending on the state tax laws.  Rebates – Discounts, if any, given by the manufacturer or car dealer.  Delivered Price – Total of the purchase price, sales tax, registration fees and non-taxable items, less any rebates  Down Payment – A cash payment made by the customer  Balance Due – The amount of customer has left to pay. Cost of New Car Purchases

19.  Delivered Price = Purchase Price + Sales Tax + Registration Fees + Non Taxable Items – Rebates  Balance Due = Delivered Price – Down Payment Formula

20. Example  Go to Trucar.com and look for at least 3 cars that you would like to buy.  Compute the Delivered Price and Balance Due

21.  A car loses value as it grows older. This loss of value is called depreciation.  The total depreciation on a car is the difference between its original cost and its resale or trade-in value.  Resale value is the market value of the amount that you get when you sell the car to someone else.  The trade-in value is the amount you get for your old car when you trade-in to buy a new car. Depreciating a Car

22.  Original Cost – Trade in Resale Value = Depreciation  The actual amount of depreciation will be known only when the car is sold or traded in.  However, by making some good guesses about your car’s future value, you can calculate the estimated average annual depreciation. Formula

23.  Estimate the number of years the car will be kept.  Estimate the value of the car when it is resold or traded in  Subtract trade-in value from the original cost to estimate total depreciation.  Divide the total depreciation by the number of years the car will be kept. Formula (Continued)

24. Example  La Wanda bought a car for $14,800.00 She estimates its trade-in value will be $5,800.00 after four years. Find the total and estimated average annual depreciation of the car.  Subtract the estimated trade-in value from the original cost  $14,800 – 5,800 = 9,000 estimated total depreciation  Divide the estimated total depreciation by the number of years  $9,000.00 / 4 = $2,250.00.00 estimated average annual depreciation

25. Leasing a Car

26.  A Lease Contract – Leasing is based on the idea that you agree to make a monthly payment that covers the depreciation, finance charges, prepaid mileage and other fees. A  An additional payment may also be required at the time the lease is signed. The typical lease contract includes these items:  Lease Price – The price negotiated by you and the dealer. It is the price on which the monthly lease payments are usually figured.  Down Payment – This is an amount that may be required by the lease contract or voluntarily paid by a buyer. Cost of Leasing Cars

27.  Residual Value – The expected value of the car at the end of the lease period. This may also be thought of as a depreciated value of the car.  Interest Rate – The rate used to compute the finance charge.  Lease Term – The length of the lease usually stated in months.  Security Deposit – Money held by the dealer to pay for any possible damage to the leased car. The security deposit is refundable. Cost of Leasing Cars

28.  Loan Fee – A charge of processing the lease contract and making credit checks.  Registration Fees – The cost of license plates and title registration.  Mileage Allowed – The number of miles the car may be driven each year for the term of the lease. Cost of Leasing Cars

29.  James and his dealer negotiated a price of $27,400 for a new car. He can lease the car for $496 a month for 36 months and buy it at the end of the lease for its residual value of $16,200. If he buys the car now his monthly loan payment will be $822 for three years after making a down payment of $2,000. What is the total cost of purchasing the car under each plan? Which plan is less expensive? Buying vs Leasing  36 x $96 = $17,856 Total Lease Payment  $17,856 + 16,200 = 34,056 Total Cost to Purchase Leased car

30.  James and his dealer negotiated a price of $27,400 for a new car. He can lease the car for $496 a month for 36 months and buy it at the end of the lease for its residual value of $16,200. If he buys the car now his monthly loan payment will be $822 for three years after making a down payment of $2,000. What is the total cost of purchasing the car under each plan? Which plan is less expensive? Buying vs Leasing  36 x $822 = $29,592 Total Monthly Loan Payments  $29,592 + $2,000= $31,592 Total Cost to Purchase Outright

31.  James and his dealer negotiated a price of $27,400 for a new car. He can lease the car for $496 a month for 36 months and buy it at the end of the lease for its residual value of $16,200. If he buys the car now his monthly loan payment will be $822 for three years after making a down payment of $2,000. What is the total cost of purchasing the car under each plan? Which plan is less expensive? Buying vs Leasing  $34,056 Total Cost to Purchase a Leased Car  $31,592 Total Cost to Purchase Outright  $2,494 Less Expensive

32.  Mario had a two-year contract car lease with $528 monthly payments. His lease had a mileage limit of 12,000 miles a year and charged 20 cents a mile for each mile over the limit. His total mileage for the two years was 30,850 miles. What was the total of the cost of the lease over its term? Buying vs Leasing  24 x $528 = $12,672 Total Lease Payments  12,000 miles x 2 years = 24,000 miles Mileage Limit  30,850 miles – 24,000 miles = 6,850 Excess miles  6,850 miles x.20 = $1,370 miles Excess miles charge  $12, 672 + $1,370 = $14,042 Total Lease Cost