Deck 5: Making Automobile and Housing Decisions

Question 1

The loss in the value of an automobile over time is called:

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

Answer 1

E

Question 2

Which of the following is true of buying a used car as compared with a new car?

A)A used car will be in a better mechanical condition compared with a new car.
B)A used car will have a higher residual value than a new car.
C)The accessories in a new car will be better updated compared with those fitted in a new car.
D)Purchasing a used car will be less expensive as compared with purchasing a new car.
E)The fuel efficiency in a used car is always higher compared with that of a new car.

Answer 2

D

Question 3

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

Answer 3

False

Question 4

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 percent,4-year loan from a credit society,what is the maximum loan amount Jana can afford? (Round off the answer to nearest units place.)

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

Question 5

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 percent,3-year loan from a local bank,what is the maximum amount Henry can spend on the car? (Round the answer to the nearest units place.)

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

Question 6

Which of the following is a fixed auto ownership cost?

A)The cost of fuel
B)The cost of oil
C)The cost of automobile insurance
D)The maintenance and repair costs
E)The cost of tires

Question 7

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 8

Variable auto ownership costs are dependent on:

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

Question 9

The property listing in a local multiple listing service (MLS)cannot be accessed by all buyers and sellers.

Question 10

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 11

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 12

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 13

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 14

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

Question 15

Jacob has taken an SUV on lease from Free Cruisers Inc.for a period of four years.Jacob does not need to pay any extra amount,based on the residual value of the car,at the end of the fourth year.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 16

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 _____ lease.

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

Question 17

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 18

Prequalification provides a home buyer with information regarding the specific mortgage amounts he or she is eligible for subject to the expected changes in interest rates.

Question 19

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

Question 20

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 percent,4-year loan from the automobile dealer,what is the maximum amount he can afford to spend on the car? (Round off the answer to nearest units place.)

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

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 the insolvent borrowers 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

The financing rate on a lease similar to the interest rate on a loan is called the _____.

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

Question 23

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80 percent,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 24

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

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

Question 25

As home prices have fallen in recent years,the rent ratio:

A)and rent attractiveness have increased.
B)and rent attractiveness have decreased.
C)has increased and rent attractiveness has decreased.
D)has decreased and rent attractiveness has increased.
E)has increased and rent attractiveness has stabilized.

Question 26

Jackie is in the 28 percent marginal tax bracket and has no other itemized deductions except those related to her home.If she is eligible for a standard deduction worth $6,100 and she incurs the following costs related to housing,how much tax savings will she receive as a result of her home purchase? $$\begin{array} { | l | l | l | } \hline \text { Mortgage interest } & & \$ 14,000 \\\hline \text { Principal repayment } & & \$ 800 \\\hline \text { Homeowner's insurance } & \$ 1,000 & \\\hline \text { Real estate taxes } & & \$ 4,000 \\\hline \text { Homeowner's association fees } & \$ 1,200 & \\\hline\end{array}$$

A)$13,250
B)$5,040
C)$3,332
D)$2,800
E)$0

Question 27

Fees charged by lenders as a condition of a mortgage loan that raises the effective rate of interest are called:

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

Question 28

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 do not exceed 35 percent 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? $$\begin{array} { | l | l | } \hline \text { Monthly Gross Income } & \$ 4,000 \\\hline \text { Car payment } & \$ 350 \\\hline \text { Student loan payment } & \$ 200 \\\hline\end{array}$$

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

Question 29

_____ is a situation where homeowners owe more to the lenders than what their properties are worth.

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

Question 30

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 31

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

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

Question 32

Which of the following are tax deductible if one itemizes deductions?

A)Principal,interest,real estate taxes,and insurance
B)Principal,interest,and real estate taxes
C)Principal and interest
D)Interest,real estate taxes,and insurance
E)Interest and real estate taxes

Question 33

Phil and Christina are recently married and are unsure of where they will be relocated after Christina finishes her residency in 9 months.Based on this information,which of the following housing recommendations would be most appropriate for them?

A)Renting a home
B)Buying a condominium
C)Sharing a single-family dwelling
D)Leasing a cooperative apartment
E)Purchasing a trailer

Question 34

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)a cooperative apartment.
C)a condominium.
D)a row house.
E)a mobile home.

Question 35

Most homeowners get financial benefit from owning a home as it results in:

A)the creation of a recession proof liability.
B)saving tax liability by tax evasion.
C)tax savings due to tax shelter.
D)reducing non-depreciating assets.
E)adding to the hidden costs of mortgage payments.

Question 36

When you receive title to an individual unit and a joint ownership of any common areas and facilities,you have purchased a:

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

Question 37

_____ are the expenses that borrowers pay when a mortgage loan is closed and they receive title to the purchased property.

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

Question 38

The majority of each monthly payment at the beginning of the loan goes to pay the:

A)principal.
B)interest.
C)real estate taxes.
D)homeowner's insurance.
E)private mortgage insurance.

Question 39

If you purchase a house worth $110,000 and make a 10 percent 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 40

If you made 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
D)application fees
E)homeowner's insurance

Question 41

The biggest fixed cost of owning a car is likely to be the ____________. ​

A)loan payments
B)fuel costs
C)cost of license and renewals
D)maintenance charges

Question 42

____________ are ongoing costs of home ownership. ​

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

Question 43

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

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

Question 44

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 ____________. ​

A)when the residual value is lower than expected
B)when the residual value is more than expected
C)when the mileage limits are exceeded
D)when the mileage limits are not exceeded

Question 45

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 term?

A)Prequalification
B)The rent ratio
C)Leasing
D)Anchoring
E)The interest rate

Question 46

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

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

Question 47

Fredrick purchased a property worth $150,000 on mortgage.He had paid $30,000 as a down payment on this property.However,because of a recent slump in the real estate prices,the property is worth only $110,000,forcing Fredrick to sell the property.Assuming that no mortgage payments have been made by Fredrick,this sale is termed a(an)_____.

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

Question 48

If the interest rates and monthly mortgage payments do not change over the life of your mortgage,you have _____.

A)a reverse-annuity mortgage
B)a fixed-rate mortgage
C)an adjustable-rate mortgage
D)a rollover mortgage
E)a graduated-payment mortgage

Question 49

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

Question 50

The seller of the house typically pays the ____________. ​

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

Question 51

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)higher rent ratio
D)foreclosure of her house

Question 52

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

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

Question 53

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)the future value of similar properties in foreign countries.
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 54

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 of purchase
C)realtor for finding the desired home within a preset budget
D)lender to originate the loan

Question 55

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

Question 56

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 57

The monthly interest on your adjustable-rate mortgage 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)a negative amortization.
C)a fixed interest expense.
D)a shrinking principal.
E)an indexed equity.

Question 58

The data in a multiple listing service (MLS):

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

Question 59

The Federal Housing Administration _____ to high loan-to-value ratio mortgages.

A)guarantee
B)insurance
C)subsidies
D)grants
E)tax shelters

Question 60

A buydown 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; typically used to finance the purchase of more expensive properties.
E)a loan on which payments that equal half the regular annual interest amount are made every six months.

Question 61

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
D)Due diligence

Question 62

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 a negative amortization
B)signed up for a conventional mortgage
C)refinanced your loan
D)taken a fixed-rate mortgage

Question 63

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

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

Question 64

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

A)conventional mortgage
B)convertible ARM
C)buydown
D)two-step ARM

Question 65

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

Question 66

The Real Estate Settlement Procedures Act governs ____________ on owner-occupied houses,condominiums,and apartment buildings of four units or fewer. ​

A)mortgage closings
B)mortgage rates
C)the contingency clause
D)the terms of prequalified loans

Question 67

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 percent interest on 5-year loans,what is the maximum price Judy can pay for a vehicle?

Question 68

With prequalification,a buyer can ____________. ​

A)always negotiate a price lower than the quoted price on the property
B)set right in advance any problems on his credit report
C)get a comprehensive list of all the suitable properties in a locality
D)bargain for additional time in a property deal for the want of funds

Question 69

The real estate agent's commission is generally paid by ____________. ​

A)the seller
B)the buyer
C)the mortgage bank
D)the local multiple listing service provider

Question 70

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

Question 71

A veteran might be able to buy a home with no down payment with ____________. ​

A)an FHA mortgage insurance
B)a VA loan guarantee
C)a buydown
D)a conventional mortgage

Question 72

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 percent down payment,and they must pay 2 points on the loan.Closing costs should be 3 percent of the purchase price.What is the total dollar amount they will need at closing? (Show all work.)