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

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

A signed sales contract binds you to purchase the car at the price stated in the contract.

Question 5

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

Question 6

Most experts consider extended warranties on new vehicles unnecessary given the relatively long initial warranty periods now offered by most manufacturers.

Question 7

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

Question 8

Lowballing 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 9

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

Question 10

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

Question 11

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 12

Gasoline is a variable cost of automobile ownership.

Question 13

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 14

Lowballing 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 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

A condominium buyer receives title to an individual unit and joint ownership of the common areas.

Question 28

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

Question 29

Housing prices vary widely from on part of the country to another.

Question 30

The term condominium refers to a style of architecture.

Question 31

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

Question 32

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

Question 33

If lenders specify a loan-to-value ratio of 80 percent,then a buyer must make a 20% down payment on the purchase of a home.

Question 34

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 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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 41

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

Question 42

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

Question 43

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

Question 44

First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.

Question 45

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

Question 46

Private mortgage insurance (PMI)protects the lender from loss on a loan.

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

Negative amortization is possible with an adjustable-rate mortgage.

Question 55

The Veterans Administration guarantees mortgage loans given to qualified veterans.

Question 56

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

Question 57

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

Question 58

Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.

Question 59

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

Question 60

An FHA loan is insured by the federal government.

Question 61

Balloon payment mortgages generally must be refinanced.

Question 62

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,what is the maximum loan amount Jana can afford?

A)$12,528
B)$14,000
C)$16,028
D)$17,900
E)$18,028

Question 63

The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.

Question 64

The loss of value in a car over time is called

A)maintenance.
B)loan payments.
C)sales payments.
D)commissions.
E)depreciation.

Question 65

Kurt has $4,500 for a down payment and thinks she can afford monthly payments of $300.If he can finance a vehicle with a 7%,4-year loan,what is the maximum amount Kurt can afford to spend on the car?

A)$13,528
B)$14,400
C)$16,028
D)$17,028
E)$18,028

Question 66

Advantages of buying a used car rather than a new car include

A)certainty about mechanical condition.
B)will appreciate more quickly.
C)more choices available.
D)less expensive.
E)all of the above.

Question 67

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,what is the maximum amount Henry can spend on the car?

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

Question 68

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

Question 69

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

Question 70

A short sale does not affect a distressed homeowner's credit score as much as a foreclosure.

Question 71

An increase in the "rent ratio" indicates that renting is more affordable relative to housing prices.

Question 72

According to federal law,private mortgage insurance on most loans ends automatically once the mortgage is paid down to 80% of the home's current market value.

Question 73

Variable auto ownership costs are most dependent on

A)driver behavior.
B)miles driven.
C)city lived in.
D)down payment.
E)installment payments.

Question 74

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

A)test drive several cars.
B)begin negotiations.
C)consider alternative buying strategies.
D)decide whether to trade in your used car or to sell it yourself.
E)research which car best meets your needs.

Question 75

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

Question 76

Renting affords more flexibility than home ownership.

Question 77

____ is a fixed auto ownership cost.

A)Gasoline
B)Installment loan payment
C)Auto insurance
D)Maintenance
E)Both b and c

Question 78

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

Question 79

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 80

The "rent ratio" has fallen as home prices have fallen.