1. Chapter 6
Own a Home or Car

2. 6.1 Borrowing to Buy a Home

3. Down Payments and Closing Costs
Down Payment - % of the total cost of the house paid at the time of purchase to the lender
0-30%
More put down less need to borrow
Mortgage loan – Balance of purchase price after down payment
Principal - $ borrowed

4. Mortgage = Purchase Price – Down Loan Payment
Closing Costs – fees and expenses paid to complete transfer of home ownership
3 - 6% of purchase price of home
Mortgage = Purchase Price – Down
Loan Payment
Cash Needed = Down Closing
Payment costs

5. 86000 * 0.25 =
86000 – =
64500
B * 0.05 = 3200
64000 * = 2240
= 5440

6. Mortgage Loan Interest Costs
Fixed rate mortgage – same rate of interest paid for life of loan
Variable rate mortgage – rate of interest is not guaranteed and may inc or dec
Mortgage payments are repaid gradually or amortized
Part of payment is principal and part interest

7. C from chart
20 * 12 = 240
* 240 =
– = D
25 * 12 = 300
* 300 =
77316 – = 37316

8. Refinancing a Mortgage
Can replace fixed rate mortgage with lower rate if available
Pay closing costs and additional fees

9. E. 597 * 12 = 7164
465 * 12 = = 6416
7164 – 6416 = 748
F. 982 * 12 = 11784
876 * 12 = = 11713
11784 – = 71

10. 6.2 Renting or Owning a Home

11. Costs of Home Ownership
Property taxes
Repairs
Maintenance
Utilities
Insurance
Mortgage interest
Special services
Depreciation
Loss of investment income

12. Depreciation – loss in value of property caused by aging and use
1-4% of original value of home per year
Benefits
Interest on mortgage and property taxes deducted on tax return
Equity built up in home

13. =17892
= 16572
B * 0.02 = 1740
= – 1050 = 12629

14. Costs of Property Rental
Advantages of Renting:
No significant down payment
Interest income
Predictable house costs
Disadvantages of Renting
No federal income tax benefits
Do not build equity
Do not pay security deposit (one time payment)

15. C. 625*12= 7500
= 9430
D. 1250*13 = 16250
100*12 = 1200
= 19286

16. Comparing Renting & Owning Homes
E. House
= – 1600 = 10986
Rent
785*12 = =10885
= 101 rent cheaper

17. F. House
240 * 12 = =9688
Rent
510*12 = 6120
= 3568 renting cheaper

18. 6.3 Property Taxes

19. Decimal Tax Rate
Property Taxes – Taxes on the value of real estate such as homes, businesses, or farm land
Collected annually or semiannually
Amount of property tax is based on assessed value of property

20. Amount to be Raised = Decimal By Property Tax Tax
Total Assessed Value Rate
6,750, ,000= 6,100,000 = 0.076
80,000,000
B. 1,950,000 =
48,200,000

21. Tax Rates per $100 or $1000 of Assessed Value
/ by 100 or 1000 and then x by rate
C /100 = 420 * =
D /100 = 1200 * =
E /1000 = 67.5 * =
F / 1000 = 13.5 * =

22. Tax Rates in Mills or Cents per Dollar of Assessed Value
Mills /1000 x property
Cents/100 x property
G. 52/1000 = * =
H. 3.8/100 = 0.038*32100 =

23. 6.4 Property Insurance

24. Property Owners Insurance Premiums
Homeowners Insurance – policy that covers your home and protects you against other risks
Dwelling
Other Structures
Personal property
Additional living expense
Personal liability
Medical payments to others

25. Replacement Cost Policies – The insurance company will pay the cost of replacing your property at current prices
Premium – The amount paid to insurance company for property insurance
Rider insurance for specialty items
Rounded to nearest $

26. 61000/100 = 610 * 0.46 = = 281
43000/100 = 430 * 0.74 =

27. Renters Insurance Premiums
Renters Policy – Covers content of house, not actual structure or building
C = 196
D. 138

28. 6.5 Buying A Car

29. Manufacturer’s Suggested Retail Price
MSRP – Manufacturer’s Suggested Retail Price or sticker price
Base Price – Price paid for a model equipped with standard features

30. Cost of New Car Purchases
Purchase Price
Sales Tax
Registration Fees
Non-Taxable Items (warranties)
Rebates
Delivered Price – out the door price
Down Payment
Balance Due – usually borrowed

31. Delivered Price = Purchase Price + Sales Tax + Registration Fees + Non-taxable Items – Rebates
Balance Due = Delivered Price – Down Payment

32. C *0.045=903 = =
D *0.06 = =
16238*0.10=1623.8 =

33. Cost of Used Car Purchases
Purchase Price – Price the buyer and seller agree upon
E *0.07= =
17787
F * 0.05= =
11370*0.25=2842.5 =
9425

34. 6.6 Depreciating a Car

35. Average Annual Depreciation
Car loses value as it ages
Resale value – Market value or the amount you get when you sell the car to someone else
Trade-in value – amount you get for your old car when you trade it in to buy a new car
Original – Trade in = Depreciation
Cost Resale Value

36. Steps to calculate depreciation:
Estimate # of years the car will be kept
Estimate value of the car when it is resold or traded in
Subtract trade-in value from original cost
Divide depreciation by # of years

37. =
9700
9700/2=
4850
B =
12330
12330/9
1370

38. Rate of Depreciation Rate of = Average Annual / Original Cost
Depreciation Depreciation
C =
6900/23000 =
0.30 or 30%
D =
8832/12 =
736/9200=
0.08 or 8%

39. 6.7 Car Insurance

40. Car Insurance Premiums
4 Basic Types of Auto Insurance
Bodily Injury
Property Damage
Collision-covers damage to your car
Comprehensive Coverage-ex. hitting a deer
State Mandated
Age 25
If have a car loan-have to carry full coverage

41. =
664.85
B =

42. 6.8 Car Purchases and Leases

43. Financing Often make a down payment and take out an installment loan
1-7 years
x 36 =
8, ,650 =
11,084.80
B x 60 =
48, ,500 =
52,828.20

44. Costs of Leasing A lease is a contract
Lessor – the company that owns the car
Lessee – the person who will be given the right to use the car
Read the contract including mileage agreement

45. Lease Contract Includes:
Lease Price
Down Payment
Residual Value
Interest Rate
Lease Term
Security Deposit
Loan Fee
Registration Fees
Mileage Allowed

46. C. 528 x 24 =
12,672
30,850 – (12,000 x 2 ) = 6,850 x 0.20 =
1, ,672 =
14,042
D. 332 x 48 =
15,936
(3,000 x 4) x 0.07 =
, =
17,194

47. Comparing Leasing and Buying
Can purchase a car at the end of a lease for amount = residual value
Residual Value – Estimated value of the car

48. E. Leasing
436 x 24 =
10, ,000 =
21,964
Buying
728 x 24 =
17, ,100 =
20,572
21,964 – 20,572 =
1,392 Buying Cheaper

49. F. Leasing
623 x 48 =
29, , =
49,949
873 x 48 =
41, ,800 =
45,704 – 49,949 =
4,245 leasing more

50. Costs of Operating Cars
Insurance
Gas
Oil
License and Inspection Fees
Tires
Repairs
Garage Rent
Parking Fees
Taxes
General Upkeep

51. G. 12,480 x 0.12 =
1, , =
4,705
H. 600 x 0.10 = =
2,158