Stock Market Analysis and Personal Finance Mr. Bernstein Housing Finance, pp March 19-20, 2013

Stock Market Analysis & Personal Finance Mr. Bernstein Housing and Lifestyle Features Living space desired Acreage Commuting Budget Life Phase Renting vs. buying 2

Stock Market Analysis & Personal Finance Mr. Bernstein Housing and Lifestyle 3 AdvantagesDisadvantages Renting an Apartment Easy to move Low maintenance Low financial commitment No tax advantage Limitations on activities Less privacy Renting a House Easy to move Low maintenance Low financial commitment Higher utilities expenses Some limits on activities No tax advantage Owning a House Pride of ownership More space Tax benefits Financial commitment/risk High living expenses Limited mobility Owning a Condominium Pride of ownership Lower maintenance Tax benefits Access to recreation and business Financial commitment/risk Less privacy than a house Need to get along with others Less space than a house Owning a Mobile HomeLess expensive than houseLower quality than house

Stock Market Analysis & Personal Finance Mr. Bernstein Renting + Mobility + Fewer Responsibilities + Low upfront costs -Lifestyle restrictions Rental Agreements and Leases 4

Stock Market Analysis & Personal Finance Mr. Bernstein Tenant’s Rights and Duties Right of Possession Landlords generally do not have right to enter and inspect unless stated in lease Right to Use Property Right to Assign or Sublet Tenant remains responsible toward landlord Duty to pay rent in timely fashion Duty to take reasonable care of property (record condition before moving in) Duty to notify landlord of needed repairs Tort liability to guests (purchase renter’s insurance) 5

Stock Market Analysis & Personal Finance Mr. Bernstein Landlord’s Rights and Duties Right to receive rent in timely fashion Rent due even if tenant vacates early Right to regain possession at end of lease Duty to maintain common grounds of multi-unit building Duty to maintain housing code Duty to pay property taxes 6

Stock Market Analysis & Personal Finance Mr. Bernstein Types of Housing Single-Family - Unattached Multi-Family – Duplexes, Townhouse, 4-flats, etc. Condominiums – similar to apartments but owned, not rented Coops – Apartment building owned by residents Mobile Homes – Inexpensive, popular in some climates 7

Stock Market Analysis & Personal Finance Mr. Bernstein Mortgage Financing Long-term collateralized loan Most common lengths are 15 and 30 years Failure to make payments can result in foreclosure, or taking possession of property by lender Amortization is the amount of principal paid each month; small at first and increases over time. Why? 8

Stock Market Analysis & Personal Finance Mr. Bernstein Mortgage Financing Interest Rates, Points and APR (Annual Percentage Rate) $100,000 loan with 1 point and 5% interest rate Amount borrowed is $99,000; APR is 5.09% $100,000 loan with 4 points and 4.5% interest rate Amount borrowed is $96,000; APR is 4.85% Which is the better deal?... Over 30 years, the latter deal has lower APR…but… If you move in 5 years, the points are spread over fewer years and the APRs are 5.41% and 6.12%!! 9

Stock Market Analysis & Personal Finance Mr. Bernstein Mortgage Financing Closing costs other than Points and misc. lender fees* Title Search Fee ($300) Title Insurance ($1400) Attorney’s Fee ($500) Property Survey ($700) Appraisal Fee ($400) Termite or other Inspection Fees ($100) Real Estate Agent Commission (paid by seller; 3-6%) * - Average 2012 New Jersey costs from: 10

Stock Market Analysis & Personal Finance Mr. Bernstein Mortgage Financing ARMs: Adjustable Rate Mortgages Typical terms: low rate for 1, 2 or 5 years, then an adjustment to a spread over a common floating rate Example: 2% for 5 years, then LIBOR + 2.5% Rate may be capped Discounted rate in early years is paid for by accepting risk of rising rates in later years Interesting if you plan to move within a few years…but if not, beware…the adjustment can be dramatic ARMs caused many bankruptcies in 2008 crisis 11

Stock Market Analysis & Personal Finance Mr. Bernstein Mortgage Financing Important Terms Equity: Value of home minus amount still owed Home Equity Loan: “Second Mortgage” Refinancing: New mortgage, pays off old mortgage, often establishes a lower or fixed rate Escrow Account: Many mortgage lenders will require Property Tax money be paid into a trust account with house payments 12