Deck 5: Making Automobile and Housing Decisions

Question 1

The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.

Answer 1

False

Question 2

Capitalized cost on an auto lease is similar to the interest rate on a loan.

Answer 2

False

Question 3

The money factor on an auto lease is similar to the interest rate on a loan.

Answer 3

True

Question 4

When buying a used car,it is very important to have it checked by a reputable mechanic.

Question 5

Capitalized cost on an auto lease is the same as the price of the car.

Question 6

Most new car warranties cover a minimum of the first 36,000 miles or 3 years of ownership.

Question 7

Terminating a car lease before expiration is often difficult and costly.

Question 8

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

Question 9

Less rapid depreciation is one advantage of buying a new car rather than a used car.

Question 10

An automobile is a personal use asset for most buyers.

Question 11

Low-balling is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a different,more expensive vehicle.

Question 12

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 13

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.

Question 14

The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.

Question 15

Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer,and negotiates the price upward prior to signing the sales agreement.

Question 16

Automobiles tend to decrease in value over time.

Question 17

Gasoline is a variable cost of automobile ownership.

Question 18

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.

Question 19

Most new car warranties cover a minimum of the first 72,000 miles or 6 years of ownership.

Question 20

A closed-end automobile lease is the most popular type of lease.

Question 21

A loan-to-value ratio of 90 percent would require a buyer to make a 90% down payment.

Question 22

The federal income tax advantage gained from home ownership will depend on the amount of deductible interest and property taxes and your total income.

Question 23

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

Question 24

The term condominium refers to a style of architecture.

Question 25

A loan-to-value ratio of 80 percent would require a buyer to make a 20% down payment.

Question 26

In a condominium and townhome,the buyer receives title to an individual unit and joint ownership of the common areas.

Question 27

Condominium and Townhome owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.

Question 28

A significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property.

Question 29

Townhome,condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes.

Question 30

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.

Question 31

Condominiums and townhomes are generally less costly than single-family,detached homes.

Question 32

There are large regional differences in the price of housing.

Question 33

The largest single investment you will undertake in your lifetime will probably be the purchase of a house.

Question 34

The difference between the market value of your home and the balance of the mortgage is your equity in the property.

Question 35

A lender will generally require mortgage insurance if the down payment is less than 20 percent.

Question 36

To make a legally binding offer on a car,you must sign a sales contract that specifies the offering price and all the conditions of your offer.

Question 37

One who leases an automobile is typically responsible for early termination costs,even when early termination is due to theft or auto accidents.

Question 38

A condominium or townhome buyer will make monthly mortgage payments as well as pay a fee for services and maintenance of common areas.

Question 39

As a homeowner,the federal government may allow you to deduct interest expenses and taxes paid on the property.

Question 40

The sales contract on an automobile purchase contractually binds you to purchase the car at the price you offered in the contract.

Question 41

The down payment is typically the only substantial housing cost that must be paid at the time of the purchase.

Question 42

Points paid to secure a mortgage to purchase a primary residence will generally be tax deductible as interest in the year they are paid.

Question 43

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

Question 44

If you are buying a house that is for sale by the owners,the earnest money goes directly to the seller.

Question 45

Security deposits are controlled by the tenant.

Question 46

You will need to purchase homeowners insurance equal to the purchase price of the house you are buying.

Question 47

A PITI payment is composed of principal,interest,real estate taxes,and insurance.

Question 48

The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.

Question 49

A real estate sales contract contains the terms and provisions which establish the sale's transaction.

Question 50

Private Mortgage Insurance (PMI)protects the lender from loss on a loan.

Question 51

First-time homebuyers can withdraw up to $25,000 from an IRA without penalty if they are 30 years of age or less.

Question 52

First-time homebuyers can withdraw up to $10,000 from an IRA without penalty regardless of their age.

Question 53

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

Question 54

Points paid when a home is refinanced can all be deducted as interest in the year they are paid.

Question 55

The market price of a house is $125,000 and the homebuyer will borrow $100,000.Two points will equal $2,500.

Question 56

If a buyer withdraws from a transaction without a valid reason after signing a sales contract,he typically loses his earnest money.

Question 57

A 5 percent down payment will result in larger monthly mortgage payments than a 10 percent down payment on the same house for the same maturity mortgage.

Question 58

The market price of a house is $125,000 and the homebuyer will borrow $100,000.Two points will equal $2,000.

Question 59

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

Question 60

Earnest money deposits and contingency clauses are usually specified in the sale contract.

Question 61

An adjustable rate mortgage with a baseline rate of 4%,a margin of 1%,and an annual cap of 1% would have an initial mortgage rate no higher than 6%.

Question 62

Balloon payment mortgages generally must be refinanced.

Question 63

The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.

Question 64

The Veterans Administration guarantees mortgage loans given to qualified veterans.

Question 65

Adjustable-rate mortgages with interest rate caps can lead to negative amortization.

Question 66

To be legally binding,real estate buy-sell agreements must be in writing,but leases may be oral.

Question 67

A FHA loan is insured by the federal government.

Question 68

One can increase the tax benefits of homeownership by selecting a shorter term mortgage,for example 15 years rather than 30 years.

Question 69

According to federal law,private mortgage insurance on most loans currently made ends automatically once the mortgage is paid down to 80% of the original value of the house.

Question 70

Commercial banks are an important source of both mortgage loans and interim construction loans.

Question 71

Other factors being equal,fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.

Question 72

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

Question 73

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

Question 74

Adjustable-rate mortgages with monthly payment caps can lead to negative amortization.

Question 75

An adjustable rate mortgage with a baseline rate of 5%,a margin of 2%,and an annual cap of 1% would have an initial mortgage rate of 7%.

Question 76

Negative amortization is possible with an adjustable-rate mortgage.

Question 77

Negative amortization is possible with a fixed-rate mortgage.

Question 78

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

Question 79

According to federal law,private mortgage insurance on most loans currently made ends automatically once the mortgage is paid down to 78% of the original value of the house.

Question 80

The interest rate is lower on a 6-year auto loan than on a 3-year auto loan