Personal Finance Chapter 9

Lonette and Al received a statement reporting that they paid $7,000 in mortgage interest during the past year. If they are in a 33 percent tax bracket, this deduction may reduce their taxable income by:$875.$7,000. $2,625.$3,500.$2,310. $7,000.
Todd Foley is applying for a $170,000 mortgage. He can get a $1,190 monthly payment for principal and interest and no points, or a $1,071 monthly payment with 4 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?8064142957 57
Michelle Duncan wants to know her affordable home purchase price. Her annual gross income is $49,200. She has $680 per month of other debt and expects her property taxes and homeowners insurance to cost $210 per month. She knows she can get a 6.00%, 30-year mortgage so that her mortgage payment factor is $6.00. She expects to make a 20% down payment. What is Michelle’s affordable home purchase price?$111,333 – Incorrect$556,667$27,833$139,167$48,310
Duane MIller wants to know his affordable home purchase price. His annual gross income is $55,200. He has no other debt expenses and expects property taxes and insurance to cost $350 per month. He knows he can get a 6.00%, 15-year mortgage so that his mortgage payment factor is $8.43. He expects to make a 25% down payment. What is Duane’s affordable home purchase price?$164,151$184,737$133,873 – Incorrect$235,083$205,609
A renter is required to pay a security deposit of $1,600, on which 3.5 percent interest will be paid. What amount would the person earn each year?$28.00$3.50$56.00$11.20$112.00 $56.00
If closing costs of $2,500 are associated with the refinance of a mortgage that would reduce the monthly payment from $1,150 to $1,081 refinance, it would take approximately ____ months to cover these costs.3436403245 36
A person who pays $5,400 in real estate property taxes and is in the 28 percent tax bracket, would reduce the amount paid for federal income taxes by:Assume the person has other itemized deductions that exceed the standard deduction amount.$1,512.$5,400 -Incorrect$4,400.$3,400.$3,888.
Some real estate experts estimate that remodeling a kitchen can add 123 percent of the cost of remodeling to the value of the house. A remodeled kitchen costing $7,600 could add _____ to the value of the house.$3,800$9,348$8,588$12,300$7,600 $9,348
Which of the following is an example of a conventional mortgage?An FHA mortgageA buy-downA fixed-rate mortgage A shared-appreciation mortgageA home equity loan A fixed-rate mortgage
If closing costs of $1,400 are associated with the refinance of a mortgage that would reduce the monthly payment from $980 to $870, it would take approximately ____ months to cover these costs.6913 1722 13
Earnest money is used:to pay real estate property taxes.to reduce the mortgage interest rate.as evidence of good faith by a homebuyer. to pay the real estate agent’s commission.to pay a mortgage application fee. as evidence of good faith by a homebuyer.
Kate plans to rent instead of buying her housing. Which advantage of renting will she realize?Tax deductionsLower initial costs Property value increasesRestricted lifestyleHome remodeling flexibility Lower initial costs
Which of the following would increase the equity in a home at a faster rate?Making a down payment of 10 percent instead of 20 percentObtaining a mortgage interest rate of 9 percent instead of 8 percentObtaining a 15-year mortgage instead of a 30-year mortgage deposits to the escrow accountObtaining an interest-only mortgage Obtaining a 15-year mortgage instead of a 30-year mortgage
Refinancing of a mortgage is recommended when:interest rates rise.interest rates fall. the escrow account balance declines.two or more points are required by the lender at the time of closing.the escrow account balance increases. interest rates fall.
A possible disadvantage of FHA and VA mortgages can behigher debt ratios for buyers.a longer processing time due to a backlog of applications. loans may be assumable.the monthly payments will always be higher than those of other mortgages.the high down payment requirements. a longer processing time due to a backlog of applications.
The purpose of a counteroffer is to:negotiate the purchase price. reduce mortgage payments.lower real estate property taxes.avoid paying points at closing.avoid paying the real estate agent’s commission. negotiate the purchase price.
A major expense associated with home ownership would be:enter’s insurance.the security deposit.increased value of the property.real estate taxes. interest lost on the security deposit. real estate taxes.
Renting would be most appropriate for people who:want more tax deduction benefits.desire to do their own maintenance and repairs.have limited initial funds available.enjoy remodeling their residence.desire unmonitored parties. have limited initial funds available.
Which one of these situations creates negative amortization?Increasing the amount of the monthly mortgage paymentPaying less than the monthly interest on a mortgage Decreasing the amount paid into an escrow accountLowering the mortgage interest rateDecreasing the amount of the down payment Paying less than the monthly interest on a mortgage
Which one of the following is an advantage of renting?Unrestricted lifestyleTax benefitsFewer responsibilities Increased value of real estateIncreased maintenance costs Fewer responsibilities
A lease provides protection to both the tenant and the landlord. true
Condominiums involve the purchase of an individual housing unit in a building rather than an entire building. true
Real estate professionals believe that location is the most important factor to consider when selecting a home. true
Negotiating a purchase price for a home can involve an offer and a counteroffer. true
The amount of the down payment will affect the size of the mortgage loan needed to purchase a home. true
Prepaid interest may be a part of a mortgage agreement. true
Amortization refers to changes in the monthly payment for a variable rate mortgage. false
An FHA-insured mortgage has low down payment requirements and is fully assumable with no prepayment penalties. true
An escrow account is designed to reduce the cost of a mortgage. false
An appraisal refers to the price for which a home has been sold. false
Home improvements may or may not increase the selling price of the home. True
The purpose of a rate cap in an adjustable rate mortgage is to limit the amount by which the interest rate can vary. true
A deed is the document that transfers ownership of the property from one party to another. true
You estimate that you can save $8,800 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for five years at 5 percent? Use Exhibit 1-A. FV = Inital savings × Future value factor = $8,800 × 1.276 = $11,228.80
Ben and Carla Manchester plan to buy a condominium. They will obtain a $244,000, 25-year mortgage at 7.5 percent. Their annual property taxes are expected to be $2,112. Property insurance is $660 a year, and the condo association fee is $35 a month. Based on these items, determine the total monthly housing payment for the Manchesters. Use Exhibit 9-9. Monthly mortgage payment: $ 1,803.16 Monthly property taxes: 176.00 Monthly property insurance: $ 55.00 Monthly association fee: 35.00 Total monthly housing payment: $ 2,069 Monthly mortgage payment = Mortgage factor × Mortgage amount in thousands = $7.39 × 244 = $1,803.16 Monthly property taxes = Annual taxes / 12 = $2,112 / 12 = $176.00 Monthly property insurance = Annual property insurance / 12 = $660 / 12 = $55.00
In an attempt to have funds for a down payment, Jan Carlson plans to save $4,100 a year for the next five years. With an interest rate of 8 percent, what amount will Jan have available for a down payment after the five years? Use Exhibit 1-B FV = $4,100 × 5.867 = $24,054.70
Kelly and Tim Browne plan to refinance their mortgage to obtain a lower interest rate. They will reduce their mortgage payments by $135 a month. Their closing costs for refinancing will be $2,270. How long will it take them to recover the cost of refinancing? Recovery time = Refinancing cost / Monthly savings = $2,270 / $135 = 16.8 months
Which mortgage would result in higher total payments? Mortgage A: $1,380 a month for 30 yearsMortgage B: $1,000 a month for 4 years and $1,450 for 26 years Total payments = Monthly payment × Number of months per year × Number of years Mortgage A:Total payments = $1,380 × 12 × 30 = $496,800 Mortgage B:Tota payments = ($1,000 × 12 × 4) + ($1,450 × 12 × 26) = $48,000 + $452,400 = $500,400 Mortgage B has higher total payments than Mortgage A.
Based on Exhibit 9-9, or using a financial calculator, what would be the monthly mortgage payments for each of the following situations?a. $79,000, 15-year loan at 7.00 percent.b. $140,000, 30-year loan at 8.50 percent.c. $97,000, 20-year loan at 6.00 percent. a. $8.98 × 79 = $709.42b. $7.69 × 140 = $1,076.60c. $7.16 × 97 = $694.52 Longer mortgage terms mean a lower monthly payment. As rates increase, a higher monthly payment is required.

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