Chapter 6

Own a Home or Car

6.1 Borrowing to Buy a Home

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

• 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

A. 86000 * 0.25 =

86000 – 21500 =

64500

B. 64000 * 0.05 = 3200

64000 * 0.035 = 2240

3200 + 2240 = 5440

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

C. 620.24 from chart

20 * 12 = 240

620.24 * 240 = 148857.60

148857.60 – 80000 = 68857.60

D. 257.72

25 * 12 = 300

257.72 * 300 =

77316 – 40000 = 37316

Refinancing a Mortgage

• Can replace fixed rate mortgage with lower rate if available

• Pay closing costs and additional fees

E. 597 * 12 = 7164

465 * 12 = 5580 + 836 = 6416

7164 – 6416 = 748

F. 982 * 12 = 11784

876 * 12 = 10512 + 716 + 485 = 11713

11784 – 11713 = 71

6.2 Renting or Owning a Home

Costs of Home Ownership

• Costs of home ownership– Property taxes– Repairs– Maintenance– Utilities– Insurance – Mortgage interest– Special services– Depreciation– Loss of investment income

• 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

A. 6848+3782+560+1790+1300+2050+1562=17892

17892-1320 = 16572

B. 87000 * 0.02 = 1740

5788+1904+347+1140+1740+900+1860 = 13679 – 1050 = 12629

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)

C. 625*12= 7500

7500 + 625 + 85 + 1210 + 10 = 9430

D. 1250*13 = 16250

100*12 = 1200

16250 + 1200 + 136 + 1700 = 19286

Comparing Renting & Owning Homes

E. House

9100+2926+560 = 12586 – 1600 = 10986

Rent

785*12 = 9420 +115+1150+200 =10885

10986-10885 = 101 rent cheaper

F. House

240 * 12 =2880+276+980+4060+764+57+945-274 =9688

Rent

510*12 = 6120

9688-6120= 3568 renting cheaper

6.3 Property Taxes

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

Amount to be Raised = Decimal

By Property Tax Tax

Total Assessed Value Rate

A.6,750,000-650,000= 6,100,000 = 0.076 80,000,000

B. 1,950,000 = 0.0405

48,200,000

Tax Rates per $100 or $1000 of Assessed Value

• / by 100 or 1000 and then x by rate

C. 42000/100 = 420 * 3.736 = 1569.12

D. 120000/100 = 1200 * 4.128 = 4953.6

E. 67500/1000 = 67.5 * 50.08 = 3380.4

F. 13500 / 1000 = 13.5 * 25.83 = 348.71

Tax Rates in Mills or Cents per Dollar of Assessed Value

• Mills /1000 x property

• Cents/100 x property

G. 52/1000 = 0.052 * 38400 = 1996.80

H. 3.8/100 = 0.038*32100 = 1219.8

6.4 Property Insurance

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

• 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 $

A. 61000/100 = 610 * 0.46 = 280.60 = 281

B. 43000/100 = 430 * 0.74 = 318.20

Renters Insurance Premiums

• Renters Policy – Covers content of house, not actual structure or building

C. 165+31 = 196

D. 138

6.5 Buying A Car

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

Purchase PriceSales TaxRegistration FeesNon-Taxable Items (warranties)RebatesDelivered Price – out the door priceDown PaymentBalance Due – usually borrowed

Cost of New Car Purchases

Delivered Price = Purchase Price + Sales Tax + Registration Fees + Non-taxable Items – Rebates

Balance Due = Delivered Price – Down Payment

C. 20067*0.045=90320067+903+250+134.85=21354.8721354.87-6000=15354.87

D. 16238*0.06 = 974.2816238+974.28+186=17398.2816238*0.10=1623.817398.28-1623.8=15774.48

Cost of Used Car Purchases

• Purchase Price – Price the buyer and seller agree upon

E. 16500*0.07=1155+16500+85+47=17787F. 11370 * 0.05=568.50+200+129+11370 =12267.5011370*0.25=2842.512267.50-2842.5=9425

6.6 Depreciating a Car

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

Steps to calculate depreciation:

1. Estimate # of years the car will be kept

2. Estimate value of the car when it is resold or traded in

3. Subtract trade-in value from original cost

4. Divide depreciation by # of years

A. 19500-9800=97009700/2=4850B. 14130-1800 =1233012330/91370

Rate of Depreciation

• Rate of = Average Annual / Original CostDepreciation Depreciation

C. 23000-16100 =6900/23000 = 0.30 or 30%D. 9200-368=8832/12 = 736/9200=0.08 or 8%

6.7 Car Insurance

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

A. 22.84+179.44+358.24+104.33 =

664.85

B. 79.74+274.44+574.70+135.62 =

1064.50

6.8 Car Purchases and Leases

Financing

• Often make a down payment and take out an installment loan

• 1-7 yearsA. 234.30 x 36 = 8,434.80 + 2,650 = 11,084.80B. 805.47 x 60 = 48,328.20 + 4,500 = 52,828.20

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

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

C. 528 x 24 = 12,67230,850 – (12,000 x 2 ) = 6,850 x 0.20 = 1,370 + 12,672 = 14,042D. 332 x 48 = 15,936 (3,000 x 4) x 0.07 = 840 + 15,936 + 418 = 17,194

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

E. Leasing 436 x 24 =10,464 + 500 + 11,000 =21,964Buying728 x 24 =17,472 + 3,100 =20,57221,964 – 20,572 =1,392 Buying Cheaper

F. Leasing

623 x 48 =

29,904 + 19,050 + 995 =

49,949

873 x 48 =

41,904 + 3,800 =

45,704 – 49,949 =

4,245 leasing more

Costs of Operating Cars

• Insurance• Gas• Oil• License and Inspection Fees• Tires• Repairs• Garage Rent• Parking Fees• Taxes• General Upkeep

G. 12,480 x 0.12 =

1,497.60 + 1,070 +512 + 981 + 83 + 561 =

4,705

H. 600 x 0.10 =

60 + 610 + 780 + 630 + 63 + 15 =

2,158