Understanding Home Loans and Renting: Types, Characteristics, and Benefits, Exams of Finance

Download Understanding Home Loans and Renting: Types, Characteristics, and Benefits and more Exams Finance in PDF only on Docsity! 03/19/2013
oRenting vs owning

Types of loans and mortgages  3 ?’s on those topics o fixed, variable loans/ mortgages o loan characteristics

advantages of a home equity line of credit?

which of the following is not a factor of your credit score?

What are real estate agents?

Variable mortgage would be an Adjustable Rate Mortgage (ARM) Characteristics o Initial fixed rate period o Frequency of adjustment o Index o Margin o Annual cap o Life time cap o Floor- cannot go lower than floor Common ARMs o 7/1, 5/1 and 3/1  first number- initial fixed rate period (years)  second number- frequency of adjustment

Fixed mortgage loans are more common now  They are really low 0 Amortization loan* only need to know step one 03/19/2013 
Finding n
FVn= 1(1+r)^n
2 = 1(1.2)^n
= 3.8

Numerical Solution:
PMT= [(1+r)^n -1/ r]
FVA3= $400 [1.05^3 -1/ .05]
=1261

Numerical Solution- Due:
PMT{[1+r)^n -1/ r] x (1+r)}
= 1,324.05

Discounting: process of finding the present value of cash flow
Reverse of compounding

PV= FVn/ (1+r)^n
= $935 (1/1.10)^3
= 702.48
Discount

Present Value of an Annuity= each payment is discounted and the sum of those discounted payments is the PVA
PMT= [1-(1/(1+r^n))/r]
PVA3= $400[ 1- (1/1.05))^3/ .05]
= $400(2.72325)= $1089.3
0 Renting a home 03/19/2013  Tenant rents  Land Lord owns

A lease is a legal document that protects the property and has rules for the tenant

Lease agreement  Read the lease  Terms and conditions for extensions  Rent and payments  Security deposits  Determines who covers utilities

Tips  Safe  Clean  Pleasant  Quiet

More tips  Appliances, rent amount, transportation/location o 7/1 ARM’s o 5/1 ARM’s look at PP

Know how to solve Index and Margin

Annual cap, life time cap and floor  AC- limits the amount the rate can adjust in one year  LTC- limits the amount the rate can adjust over the life of the loan  Floor- lowest the interest rate your loan can go. o It can fall to the floor but not below it

Pre-approval:  Is the guarantee for a specified amount of time
Pre-qualified:  an estimate of what you might be able to afford

Real estate agents  Earn living from commissions

Common closing costs  Lender fees  Loan application fee  A loan origination fee  Points

3rd party fees  appraiser/inspector costs  title insurance

pre-paid items  interest between closing and first payment  HO insurance requires first 6 months up front  Property taxes- 3 months up front

The buying process is very expensive

You Broker  Seller Your agent Broker Seller





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How much do we need to know? Chapter 5 03/19/2013 Warranties  Warranty of Merchantability o Product will do what it says it will do  Warranty of Fitness o Holds seller accountable for a particular use  Can be hard to enforce
Clause: Seller can escape implied warranty by selling “as is”  Don’t go near “as is”

Save receipts

Perform mandatory maintenance

Can settle disputes through court system OR
Go to retail/manufacturer- most effective Avoid extended warranty Service contract:  Promise to perform or pay for certain repairs/services o Who backs it? o Similar to extended warranty- better

TEST: Chapters 1,3,4 and 5

Quiz on 3,4 and 5
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Know the difference between annuity and annuity due

32 questions- all multiple choice  4 pts for name on paper
Need to know  characteristics of loans o 3 questions  real estate shit o mortgages  Types of credit o 3 questions  differentiate between APR and Interest rate o APR is higher, generally includes fees while IR does not  Different aspects of personal credit  Clauses- within loans, credit card  Annuities/time value of money 