Deck 5: Making Automobile and Housing Decisions

Question 1

Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident, as well as when you just want to return the vehicle before the end of the lease.

Answer 1

True

Question 2

The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000.

Answer 2

True

Question 3

Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer and then negotiates the price upward prior to you signing the sales contract.

Answer 3

True

Question 4

You should secure the trade-in value of your current automobile before you start negotiating the final price on the car you are purchasing.

Question 5

The listing of properties in a local Multiple Listing Service (MLS) cannot be accessed by all buyers and sellers.

Question 6

An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.

Question 7

A condominium buyer will make monthly mortgage payments, as well as pay a fee for maintenance of common areas.

Question 8

Graduated-payment mortgages and growing-equity mortgages are both examples of adjustable-rate mortgages.

Question 9

The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.

Question 10

In a co-op, the buyer receives title to a unit and joint ownership of the common areas.

Question 11

Points paid to secure a mortgage to purchase a primary residence and to refinance a mortgage are usually immediately tax deductible if you itemize your taxes.

Question 12

Currently, it is cheaper to own a home than to rent in the United States.

Question 13

Balloon-payment mortgages must be refinanced.

Question 14

If the lender specifies a loan-to-value ratio of 70%, then the buyer must make a 70% down payment on the purchase of a home.

Question 15

The job of a mortgage banker is to locate conventional loans for clients.

Question 16

Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.

Question 17

Prequalification provides a home buyer with the specific mortgage amount that he or she is eligible for (subject to the expected changes in interest rates).

Question 18

A PITI payment is composed of principal, interest, property taxes, and homeowner's insurance.

Question 19

Fixed automobile costs increase as the number of miles driven increases.

Question 20

An advantage of co-op ownership is that it makes it easier to obtain a mortgage.

Question 21

A foreclosure happens when:

A) the rates of interest prevalent in the housing market are extremely volatile, forcing the lender to demand additional collateral from the borrower.
B) the lenders attempt to recover loan balances from borrowers who have quit making payments by forcing the sale of the home pledged as collateral.
C) the borrowers repay their housing loan well before the estimated closing period of the loan.
D) the value of a house is higher than the loan taken on the property.
E) the borrower is planning to restructure the loan taken for making mortgage payments.

Question 22

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only if:

A) fuel costs have been higher than expected.
B) the residual value is more than expected.
C) the mileage limits are exceeded.
D) the company upgrades the automobile.
E) your automobile insurance premiums increase.

Question 23

Janet is considering the purchase of a condo for $150,000 during a recession phase, partly financed by a mortgage. She is due to retire in a few years. If she cannot make her mortgage payments on time, she is bound to incur a:

A) neutral equity on her property.
B) reduced residual value of the property.
C) loan-to-value ratio .
D) foreclosure of her house.
E) fine from the local government.

Question 24

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have a(n) _____ lease.

A) residual
B) open-end
C) purchase option
D) closed-end
E) money factor

Question 25

A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary is called:

A) foreclosing.
B) anchoring.
C) depreciating.
D) leasing.
E) cooperating.

Question 26

_____ is a situation where homeowners owe more on their mortgage than what their homes are worth.

A) Negative equity
B) A foreclosure
C) A restructure
D) Inflation
E) An expanded mortgage

Question 27

Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car?

A) Money factor
B) Property depreciation cost
C) Initial residual value
D) Purchase option
E) Capital cost reduction

Question 28

The financing rate on a lease is called the:

A) lease point.
B) residual rate.
C) money factor.
D) purchase option.
E) capitalized cost.

Question 29

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round the answer to the nearest dollar.)

A) $12,528
B) $14,400
C) $16,028
D) $17,028
E) $18,028

Question 30

When shopping for a lease, you want:

A) a high insurance cost.
B) a low capitalized cost.
C) a high money factor.
D) a low residual value.
E) high lease payments.

Question 31

The first step in the auto-buying process should be:

A) to test-drive several automobiles.
B) to begin negotiations on various automobiles.
C) to decide whether to trade in your used car or to sell it yourself.
D) to consider alternative buying strategies.
E) to analyze how much you can afford to spend on the car.

Question 32

The price of the car you are leasing is called the:

A) money factor.
B) capitalized cost.
C) residual value.
D) purchase option.
E) capital cost reduction.

Question 33

Variable auto ownership costs are dependent on the:

A) driver's behavior.
B) miles covered by the automobile.
C) installment payments on a car loan.
D) down payment.
E) periodic renewals of vehicle registration.

Question 34

Which of the following is usually the biggest fixed auto ownership cost?

A) The cost of fuel
B) The cost of oil
C) The cost of installment loan payments
D) The cost of maintenance and repair
E) The cost of tires

Question 35

The affordability ratios that are used to qualify applicants for FHA loans are more stringent than those used for conventional loans.

Question 36

To refinance a mortgage, the lender typically requires you to have at least 20% equity in your home.

Question 37

The loss in the value of an automobile that occurs over its period of ownership is called:

A) reinsurance.
B) the acquisition payment.
C) the market price.
D) the repurchase commission.
E) depreciation.

Question 38

Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round the answer to the nearest dollar.)

A) $12,765
B) $14,400
C) $14,079
D) $15,265
E) $16,879

Question 39

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of 4 years. Jacob does not need to pay any extra amount when he turns in the vehicle because he didn't exceed the mileage specified in the lease and the SUV is not damaged. He has a:

A) residual lease.
B) closed-end lease.
C) purchase option lease.
D) right-to-early-termination lease.
E) reassignment option lease.

Question 40

Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan from a credit union, what is the maximum loan amount Jana can afford? (Round the answer to the nearest dollar.)

A) $12,528
B) $14,208
C) $16,028
D) $17,900
E) $18,028

Question 41

A(n) _____  ratio specifies the maximum percentage of the value of a property that a lender is willing to loan.

A) affordability-to-expense
B) loan-to-value
C) rent-to-mortgage
D) mortgage-points-to-closing-costs
E) points-to-mortgage

Question 42

Fees charged by lenders at the time they grant a mortgage loan are called:

A) mortgage points.
B) down payments.
C) add-on charges.
D) commissions.
E) loan discounts.

Question 43

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80%, then the borrower must make a down payment of at least:

A) $100,000.
B) $80,000.
C) $180,000.
D) $20,000.
E) $120,000.

Question 44

If you make a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the size of the down payment.

A) closing points
B) a bond
C) private mortgage insurance (PMI)
D) application fees
E) homeowner's insurance

Question 45

For much of the life of a fixed-rate mortgage loan, the majority of each monthly payment goes to pay the:

A) principal.
B) interest.
C) property taxes.
D) homeowner's insurance.
E) private mortgage insurance (PMI).

Question 46

Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires that the total installment of loan payments does not exceed 35% of the monthly income. Based on Barb and Bob's financial data given below, what is the maximum monthly mortgage payment for which they can qualify?

A) $1,400
B) $1,208
C) $1,502
D) $850
E) $500

Question 47

An escrow account is used to collect _____ from one's monthly mortgage payment.

A) interest
B) principal
C) property taxes
D) closing costs
E) operating expenses

Question 48

The seller of a house typically pays the:

A) appraisal fee.
B) loan application fee.
C) real estate agent's commission.
D) title search and insurance.
E) mortgage points.

Question 49

You recently bought a new home. You receive title to an individual residential unit and joint ownership of any common areas and facilities. You have purchased a:

A) single-family home.
B) cooperative apartment.
C) condominium.
D) row house.
E) mobile home.

Question 50

A lender will usually require a loan-to-value ratio of _____ or less for a borrower to avoid having to pay private mortgage insurance (PMI).

A) 75%
B) 80%
C) 85%
D) 90%
E) 95%

Question 51

_____ are the expenses that borrowers pay during the final step of a real estate purchase.

A) Amortization costs
B) Closing costs
C) Property taxes
D) Insurance costs
E) Mortgage interest expenses

Question 52

Which of the following are tax deductible if you itemize deductions?

A) Mortgage principal, mortgage interest, property taxes, and homeowner's insurance
B) Mortgage principal, mortgage interest, and property taxes
C) Mortgage principal and mortgage interest
D) Mortgage interest, property taxes, and homeowner's insurance
E) Mortgage interest and property taxes

Question 53

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 90%, then the borrower must make a:

A) minimum down payment of $10,000 plus closing costs.
B) minimum down payment of $10,000 including closing costs.
C) maximum down payment of $10,000 including closing costs and mortgage points.
D) maximum down payment of $10,000.
E) minimum down payment of $90,000 including closing costs.

Question 54

The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down payment of:

A) $34,000.
B) $28,000.
C) $108,000.
D) $112,000.
E) $20,000.

Question 55

_____ are ongoing costs of homeownership.

A) Down payments
B) Closing costs
C) Taxes on capital gains
D) Property taxes and insurance
E) Rental payments

Question 56

The data in a Multiple Listing Service (MLS):

A) eliminate the need for a real estate agent.
B) are accessible to buyers and sellers directly.
C) include the entire ownership history of the listed properties.
D) deal only with undervalued properties that are authorized by the government within a geographic location.
E) consist of a comprehensive listing of properties for sale in a given community area.

Question 57

If you purchase a house worth $110,000 and make a 10% down payment, how much would 1 mortgage point cost at closing?

A) $765
B) $990
C) $1,100
D) $1,530
E) $1,800

Question 58

A real estate sales contract will include:

A) the amount you have paid as an earnest money deposit.
B) the terms of a mortgage loan taken from a third party.
C) expected home maintenance costs.
D) the movement in the value of the property over the last 20 years.
E) the current value of the properties in the neighboring locations.

Question 59

When you lease your apartment from a nonprofit corporation that owns the building and you own a share of the nonprofit corporation, you own a:

A) single-family home.
B) cooperative apartment.
C) condominium.
D) row house.
E) mobile home.

Question 60

If your lender charges 1.5 mortgage points on a house selling for $100,000, on which there is a $90,000 loan, the points will cost you:

A) $1,350.
B) $1,500.
C) $2,850.
D) $150.
E) $900.

Question 61

On an adjustable-rate mortgage (ARM), the percentage points that a lender adds to the index rate to determine the rate of interest is called the:

A) payment cap
B) interest rate cap
C) margin
D) anchor
E) residual value

Question 62

A type of financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period, is termed a:

A) conventional mortgage.
B) convertible adjustable-rate mortgage (ARM).
C) buydown.
D) two-step adjustable-rate mortgage (ARM).
E) growing-equity mortgage.

Question 63

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. _____  will help him identify and correct any problems, such as credit report errors, that may arise on his application.

A) Prequalification
B) A contingency clause
C) A Multiple Listing Service (MLS)
D) The seller's financial institution
E) A buyer ' s agent

Question 64

A biweekly mortgage refers to:

A) a mortgage that starts with unusually low payments that rise over several years to a fixed payment.
B) financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period.
C) a fixed-rate mortgage with payments that increase over a specific period.
D) a mortgage that requires the borrower to pay only interest.
E) a loan on which payments equal to half the regular monthly payment are made every 2 weeks.

Question 65

With prequalification, a buyer can:

A) negotiate a price lower than the quoted price on the property.
B) correct any problems on his or her credit report .
C) get a comprehensive list of all the suitable properties in a locality.
D) bargain for additional time in a property deal.
E) reduce the required down payment.

Question 66

You made a $900 mortgage payment. The interest of $925 on the mortgage for this month leads to an increase in the principal balance. You have:

A) experienced negative amortization.
B) signed up for a conventional mortgage.
C) refinanced your loan.
D) taken a fixed-rate mortgage.
E) accepted a buydown.

Question 67

The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer.

A) Equal Credit Opportunity Act
B) Truth-in-Lending Act
C) Real Estate Settlement Procedures Act
D) Mortgage Lenders Act
E) Real Estate Agents Act

Question 68

Dick and Jane have just purchased a house and are calculating how much money they will need when the closing day rolls around. The purchase price is $200,000. They will make a 20% down payment, and they must pay 2 points on the loan. Closing costs should be 3% of the purchase price. What is the total dollar amount they will need at closing? (Show all work.)

Question 69

A veteran might be able to buy a home with no down payment with:

A) FHA mortgage insurance.
B) a VA loan guarantee.
C) a buydown.
D) a conventional mortgage.
E) a graduated-payment mortgage.

Question 70

Judy has $2,000 for a down payment on a vehicle, and she can afford monthly payments of $400. If lenders are currently offering 6% interest on 5-year loans, what is the maximum price Judy can pay for a vehicle? (Show all work.)

Question 71

A(n) _____ is provided to both buyer and seller at or before the actual closing and accounts for monies that change hands during the transaction.

A) closing statement
B) contingency clause
C) title check
D) sales contract
E) buydown

Question 72

The monthly interest on your adjustable-rate mortgage (ARM) was $690. You paid $650 as your monthly payment on the loan, leading to an increase in the principal balance. This is an example of:

A) a growing equity.
B) negative amortization.
C) a fixed interest expense.
D) shrinking principal.
E) an indexed equity.

Question 73

Earnest money is the sum of money the home buyer pledges with the:

A) lender to guarantee the purchase.
B) seller to indicate the intent to purchase.
C) realtor for finding the desired home within a preset budget.
D) lender to originate the loan.
E) financial institution to prequalify for a mortgage loan.

Question 74

Which of the following will help a buyer know ahead of time the specific mortgage amount that he or she will be eligible for (subject to changes in rates and terms)?

A) Prequalification
B) The loan-to-value ratio
C) Leasing
D) Anchoring
E) The interest rate

Question 75

_____ are loans offering low payments for the first few years, gradually increasing until year 3 or 5, and then remaining fixed.

A) Reverse-annuity mortgages
B) Fixed-rate mortgages
C) Adjustable-rate mortgages (ARMs)
D) Graduated-payment mortgages
E) Rollover mortgages

Question 76

Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.)

Question 77

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:

A) a foreclosure.
B) a contingency auction.
C) prequalification.
D) a real estate short sale.
E) diversification.

Question 78

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):

A) real estate declining equity.
B) real estate short sale.
C) fixed mortgage sale.
D) shrinking principal sale.
E) indexed equity.

Question 79

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

A) reverse-annuity mortgage.
B) fixed-rate mortgage.
C) adjustable-rate mortgage (ARM).
D) rollover mortgage.
E) graduated-payment mortgage.

Question 80

Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%, 3-year financing. Greg is also able to get 7%, 3-year financing from his credit union. If Greg plans to finance $18,000 over 3 years, should he take the 3.9% financing or the 7% financing? (Show all work and round to two decimal places.)