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

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

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 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

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 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 $

61000/100 = 610 * 0.46 = 280.60 = 281 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

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

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

C. 20067*0.045=903 20067+903+250+134.85= 21354.87 21354.87-6000= 15354.87 D. 16238*0.06 = 974.28 16238+974.28+186= 17398.28 16238*0.10=1623.8 17398.28-1623.8= 15774.48

Cost of Used Car Purchases Purchase Price – Price the buyer and seller agree upon E. 16500*0.07= 1155+16500+85+47= 17787 F. 11370 * 0.05= 568.50+200+129+11370 = 12267.50 11370*0.25=2842.5 12267.50-2842.5= 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: 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

19500-9800= 9700 9700/2= 4850 B. 14130-1800 = 12330 12330/9 1370

Rate of Depreciation Rate of = Average Annual / Original Cost Depreciation 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

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 years 234.30 x 36 = 8,434.80 + 2,650 = 11,084.80 B. 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 = 12,672 30,850 – (12,000 x 2 ) = 6,850 x 0.20 = 1,370 + 12,672 = 14,042 D. 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 = 21,964 Buying 728 x 24 = 17,472 + 3,100 = 20,572 21,964 – 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