21st Century Student FinLit -Getting Personal SW

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Are You Financially Literate? Chapter 9 Quiz It stands for Adjustable Rate Mortgage. The loan payments are fixed for the first 3, 5 or 7 years, then adjust. These are also called Variable Rate Mortgages or a 5/1 ARM.

7. No. The Fair Housing Act protects people from discrimination when they are renting housing. The prohibitions specifically cover discrimination because of race, color, national origin, religion, sex, disability and the presence of children. Move in costs: A = $25,000 down payment plus + taxes and insurance of $225 = 25,250; B = $1600.00 move in. Monthly housing costs: A = Loan payment of $475 + taxes and insurance of $225 = = $700; B = $700 costs will not change, as it is a fixed rate mortgage. She will also have a mortgage and property tax deductions. Brenna will build equity through amortization and possibly appreciation. If she keeps the property until the loan is paid off, she’ll have a place to live when she is older. As a renter she will have to continue to pay rent, she will have no tax deductions, and there’s no guarantee that rent wont increase over 30 years. 11. 5/1: the 5 refers to the period of time the interest rate is fixed; 1 means that after 5 years the interest rate adjusts once a year. It’s like a fee and its equal to 1% of the loan amount. It effectively works to buy down the interest rate on the loan. 12. Acceptable answer should indicate the an amortization schedule lays out how a loan is repaid over a designated period of time, and how principal and interest are applied to pay down the balance. 13. Renting offers comparable wealth-building potential only if renters invest an amount equal to a down payment plus any savings from renting. To build wealth as a renter, your living arrangement must include a disciplined scheme for investing the amount she saves by renting. 14. She can ask the Landlord for a copy of the lease agreement. It will specify who is responsible. She should read it carefully before signing! 15. Unless specified, a lease does not renew at expiration. By contrast, a rental agreement is usually for 30 days and continues to renew itself each month until either the landlord or the tenant terminates it. 16. Yes there are buy vs. rent calculators all over the internet. 17. About 5 years. 10. Stability of payment; The mortgage 8. 9. decline in value

18. RENT: security deposit; lease agreement; forclosure; eviction; unlawful detainer; tenant; month-to-month lease; landlord; rental agreement BOTH: Federal Fair Housing Act

1.

HOMEOWNERSHIP: appreciation; deed of trust; promissory; ARM; lien; note; title; points; equity; mortgage deduction; escrow; collateral; depraciation; down payment

2. 3.

A

$95,000 Downpayment ($60,000) + $35,000 (amortization); $110,000

4. 5.

B

The Big Question

Points are loan fees = to 1% of the loan. In this case he will have to pay $2400. Paying points should result in a lower interest rate.

1. 2. 3.

Student’s discretion. Student’s discretion.

6. 7. 8.

A B

Names of the landlord and the tenant; address of the rental unit; date the lease starts and ends; list of repairs the landlord has agreed to make and the date the repairs will be finished; amount of rent, when it’s due, to whom and where rent is to be paid; amount and purpose of the security deposit; amount of any late charges or returned check fee; number and names of each person living in the rental unit; who is responsible for paying utilities (gas, electric, water, trash, cable); assigned parking, if any; whether or not a pet is allowed; laundry room hours; any other arrangement or use of the property that is important to either the landlord or the tenant. PRODUCT PREVIEW 4. 5. Student’s discretion. Appreciation is an increase in value over time. It increases the owner’s equity in the property. Making a larger down payment decreases the amount of the loan/mortgage. That makes the mortgage payments lower. 6. 9.

Students should indicate that Jack will probably not receive his deposit if he leaves the apartment less clean and in worse condition than when he got it. The landlord may retain the costs of repair and cleaning. D 10. The affordability rule is that no more than

30% of take home pay should be spent on rental housing costs. His max amount is $630. At $700 this apartment is not affordable for him.

11. A 12. T 13. Students should indicate that the next step in the process is to open an escrow and make earnest deposit of about 3% 14. D 15. Students should indicate that an ARM or variable rate mortgage has lower rates for the first few years then the rate gradually increases. Since he wants lower payments now and expects to be able to handle larger ones later, an ARM may work for him. 16. If he rents, he would save the $25000 down payment plus $150 per month ($1800 per year). He must invest the savings if he wants to build wealth at a rate comparable to homeownership. 17. D 18. F 19. Lydia is on a month-to-month lease which can be terminated by 30 days notice by either landlord or tenant. She has no recourse, she will have to leave. 20. Students should indicate that to move in he will need first and last month’s rent, plus a

7. 8.

C

Student’s discretion; requires use of a mortgage calculator

9. The Rental Application is like a tenant resume – it tells who is renting, where they are employed, source of funds and rental history. Most landlords will run a credit report. 10. Read the lease or rental agreement to know and understand the terms; confirm who is responsible for payment of the utilities; inspect the property with the landlord and note the level of cleanliness and any existing

damage; obey the terms of the lease or rental agreement; get tenant insurance.

377 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY

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