AFN 221 Personal Finance Mortgage Quiz
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Questions and Answers

What should be done at the end of a lease?

  • Request a lower rent for the next lease
  • Leave the apartment in the same condition as upon moving in (correct)
  • Inform the landlord of any repairs needed
  • Obtain a new rental agreement

    • Which step involves negotiating the price of a property?

  • Find and Evaluate a Property to Purchase
  • Determine Home Ownership Needs
  • Price the Property (correct)
  • Obtain Financing

    • What factor can lead to a lower interest rate on a mortgage?

  • Having a longer loan term
  • Opting for an adjustable-rate mortgage
  • Choosing a fixed-rate mortgage
  • Making a larger down payment (correct)

    • Why is it advisable to get renter's insurance?

    <p>It protects personal belongings and liability situations</p> Signup and view all the answers

    What is the first step in the home-buying process?

    <p>Determine Home Ownership Needs</p> Signup and view all the answers

    What is an advantage of renting a residence?

    <p>Less initial financial commitment</p> Signup and view all the answers

    Which of the following is a disadvantage of renting?

    <p>Limitations on property modifications</p> Signup and view all the answers

    What is one advantage of renting a property compared to owning a house?

    <p>Less maintenance</p> Signup and view all the answers

    What is a financial benefit of buying a home?

    <p>Potential increase in house prices</p> Signup and view all the answers

    Which of these options represents a disadvantage of buying a home?

    <p>Limited financial flexibility</p> Signup and view all the answers

    Which disadvantage is common to renting a property?

    <p>Higher utility expenses</p> Signup and view all the answers

    What is a key disadvantage of owning a new house?

    <p>Limited mobility</p> Signup and view all the answers

    What is a potential inconvenience for renters mentioned in the content?

    <p>Restrictions on pets</p> Signup and view all the answers

    Which characteristic is associated with renting rather than buying?

    <p>Flexibility to move</p> Signup and view all the answers

    Which advantage is specifically associated with owning a previously owned house?

    <p>Established neighborhood</p> Signup and view all the answers

    What is a common concern associated with buying a home?

    <p>Financial uncertainty due to market conditions</p> Signup and view all the answers

    What is a disadvantage of owning a condominium?

    <p>Less privacy than a house</p> Signup and view all the answers

    How does renting affect long-term financial commitment compared to buying?

    <p>Renting typically demands less financial commitment</p> Signup and view all the answers

    What should be verified before signing a lease for a rental unit?

    <p>The starting date of the lease</p> Signup and view all the answers

    Which of the following is NOT an advantage of owning a new house?

    <p>Higher living expenses</p> Signup and view all the answers

    When renting, why is it advisable to talk to a lawyer about the lease?

    <p>To clarify unclear aspects of the lease</p> Signup and view all the answers

    What is the total monthly payment Johnny will have for his mortgage?

    <p>$1,031.23</p> Signup and view all the answers

    How much will Johnny need to pay as a down payment for the house?

    <p>$43,000</p> Signup and view all the answers

    What percentage of Johnny's monthly income does the mortgage payment represent?

    <p>20%</p> Signup and view all the answers

    What is Johnny's total monthly debt before adding the mortgage?

    <p>$425</p> Signup and view all the answers

    What is the monthly property tax Johnny needs to pay for the house?

    <p>$268.75</p> Signup and view all the answers

    What is the total monthly housing expense, including property tax and insurance?

    <p>$1,200.90</p> Signup and view all the answers

    Does Johnny meet the bank's maximum housing expense ratio of 28%?

    <p>Yes, he does.</p> Signup and view all the answers

    What is the maximum total monthly expense ratio that Johnny's bank allows?

    <p>35%</p> Signup and view all the answers

    Which of the following is NOT part of the interior construction criteria during a home inspection?

    <p>Quality of landscaping</p> Signup and view all the answers

    What criteria are considered under exterior construction during a home inspection?

    <p>Condition of bricks, wood, or other siding</p> Signup and view all the answers

    Which of the following factors is assessed in the interior design criteria for a home?

    <p>Size and arrangement of rooms</p> Signup and view all the answers

    What is NOT included in the exterior facilities criteria for a home inspection?

    <p>Adequate electrical outlets</p> Signup and view all the answers

    Which item is part of the interior construction criteria regarding windows?

    <p>Ease of operation of windows</p> Signup and view all the answers

    During a home inspection, the condition of which of the following is assessed under exterior construction criteria?

    <p>Condition and quality of roof and gutters</p> Signup and view all the answers

    Which aspect is NOT relevant to the interior design criteria for a home?

    <p>Location of street lights</p> Signup and view all the answers

    Which of the following statements about the main elements of buying a home is correct?

    <p>Average home prices can vary significantly by area.</p> Signup and view all the answers

    What is the maximum percentage of monthly income that your mortgage payment should ideally be?

    <p>20-30%</p> Signup and view all the answers

    If you can afford a monthly payment of $1,000, what is the maximum house price you can buy with a 6% APR mortgage and a 20% down payment?

    <p>$208,490</p> Signup and view all the answers

    What do banks consider when applying affordability ratios for mortgage qualification?

    <p>Additional costs such as property tax and insurance</p> Signup and view all the answers

    What is the rule of thumb for the housing expense ratio regarding a borrower's monthly income?

    <p>No more than 25-30%</p> Signup and view all the answers

    What is the range for the total expense ratio that lenders generally require?

    <p>33-38%</p> Signup and view all the answers

    Which of the following is NOT typically included in calculating the housing expense ratio?

    <p>Credit card payments</p> Signup and view all the answers

    What does a 20% down payment signify in relation to a home purchase?

    <p>It eliminates the need for mortgage insurance</p> Signup and view all the answers

    Calculating affordability for a home purchase primarily involves which of the following factors?

    <p>Monthly income and expenses</p> Signup and view all the answers

    A larger down payment on a home leads to a higher interest rate on the mortgage.

    <p>False</p> Signup and view all the answers

    Obtaining renter's insurance is important for covering personal belongings and liability situations for tenants.

    <p>True</p> Signup and view all the answers

    The home-buying process includes a step for conducting a pest inspection.

    <p>True</p> Signup and view all the answers

    At the end of a lease, tenants are required to leave the rental property in a significantly worse condition than they found it.

    <p>False</p> Signup and view all the answers

    The first step in the home-buying process is to find and evaluate a property to purchase.

    <p>False</p> Signup and view all the answers

    The condition of electrical fixtures is assessed under the exterior construction criteria during a home inspection.

    <p>False</p> Signup and view all the answers

    The amount of closet space is included in the interior design criteria for a home.

    <p>True</p> Signup and view all the answers

    The condition of bricks or other siding is evaluated as part of the interior facilities criteria.

    <p>False</p> Signup and view all the answers

    The neighborhood appearance is a factor considered in the exterior facilities criteria.

    <p>True</p> Signup and view all the answers

    Size and arrangement of rooms are evaluated under the exterior construction criteria.

    <p>False</p> Signup and view all the answers

    The quality of landscaping is included in the exterior facilities criteria.

    <p>True</p> Signup and view all the answers

    Adequate electrical outlets are considered under the interior construction criteria.

    <p>False</p> Signup and view all the answers

    Condition of the roof is one of the factors assessed in the exterior construction criteria.

    <p>True</p> Signup and view all the answers

    A larger down payment leads to higher mortgage payments.

    <p>False</p> Signup and view all the answers

    Settlement costs for a mortgage are typically between 2 to 6 percent of the loan amount.

    <p>True</p> Signup and view all the answers

    Mortgage lenders should only consider a borrower's income when qualifying for a mortgage.

    <p>False</p> Signup and view all the answers

    PITI includes principal, interest, taxes, and insurance payments.

    <p>True</p> Signup and view all the answers

    Owning a home does not require any additional funds for maintenance costs.

    <p>False</p> Signup and view all the answers

    A mortgage is defined as a short-term loan specifically for property purchases.

    <p>False</p> Signup and view all the answers

    The maximum total monthly expense ratio allowed by banks is 38% of a borrower's gross income.

    <p>True</p> Signup and view all the answers

    Paying off a mortgage early always results in losing tax deductions.

    <p>False</p> Signup and view all the answers

    A borrower with a $192,000 mortgage at an APR of 4.5% will have monthly payments of $1,072.84.

    <p>False</p> Signup and view all the answers

    In the first month of a 30-year mortgage, more than half of the payment typically goes toward interest.

    <p>True</p> Signup and view all the answers

    Over the life of a 30-year mortgage, the total cost of repaying a $192,000 loan is approximately $350,000.

    <p>True</p> Signup and view all the answers

    Interest payments on a 30-year mortgage cost about $80,000 over the life of the loan.

    <p>False</p> Signup and view all the answers

    Loan amortization indicates that the principal payment increases steadily over time.

    <p>False</p> Signup and view all the answers

    Taking a loan for a longer term generally results in lower monthly payments compared to shorter loans.

    <p>True</p> Signup and view all the answers

    Homeownership benefits may outweigh the high interest expenses incurred over time.

    <p>True</p> Signup and view all the answers

    The principal balance of a mortgage decreases significantly in the first few months of payment.

    <p>False</p> Signup and view all the answers

    If you can afford a $1,000 monthly payment, you cannot buy a house priced at $208,490 with a 6% APR mortgage and a 20% down payment.

    <p>False</p> Signup and view all the answers

    Banks typically require that the housing expense ratio should not exceed 25-30% of a borrower's monthly income.

    <p>True</p> Signup and view all the answers

    A higher monthly payment correlates directly with a lower house price.

    <p>False</p> Signup and view all the answers

    A 20% down payment generally signifies a higher interest rate on a mortgage.

    <p>False</p> Signup and view all the answers

    The total expense ratio that lenders generally require should not exceed 33-38% of a borrower's monthly income.

    <p>True</p> Signup and view all the answers

    Owning a home incurs only the cost of the mortgage payment.

    <p>False</p> Signup and view all the answers

    The maximum house price you can afford depends on your monthly payment capability and interest rate.

    <p>True</p> Signup and view all the answers

    The affordability ratio helps banks determine the size of the mortgage a borrower qualifies for.

    <p>True</p> Signup and view all the answers

    Johnny's total monthly debt payments, including his loans, amount to $425.

    <p>True</p> Signup and view all the answers

    The monthly payment for Johnny's mortgage would be $1,031.23.

    <p>True</p> Signup and view all the answers

    Johnny will need to make a down payment of $43,000 to buy the house.

    <p>True</p> Signup and view all the answers

    The combined total of Johnny's mortgage payment and other debt payments exceeds 35% of his monthly income.

    <p>False</p> Signup and view all the answers

    Johnny's maximum housing expense ratio allowed by the bank is 28% of his monthly income.

    <p>True</p> Signup and view all the answers

    The total monthly payment for property tax and homeowner's insurance is $268.75.

    <p>False</p> Signup and view all the answers

    Johnny's total housing expense, including his mortgage payment and additional costs, is $1,514.23.

    <p>True</p> Signup and view all the answers

    A mortgage with a 6% APR on a 30-year term results in a total payment less than 20% of Johnny's monthly income.

    <p>True</p> Signup and view all the answers

    Study Notes

    Personal Finance Lecture Notes

    • Course name: AFN 221, Personal Finance
    • Lecture topic: Mortgage
    • Instructor: Andreas Milidonis
    • University: University of Cyprus

    Course Concept Map

    • Introduction: Covers foundational concepts for the course.
    • Savings: Discussion of various savings strategies and investment options.
    • Interest Rates: Details on how interest rates influence financial decisions.
    • Inflation & Time Value of Money: Examining the impact of inflation on financial planning.
    • Money Management: Strategies for effective money management.
    • Consumer Borrowing: Analysis of borrowing options and their consequences.
    • Review & Midterm Exam (Credit): Materials for the exam.
    • Mortgage: Specific details regarding mortgages.
    • Insurance & Risk Management: Examining insurance and managing risk.
    • Retirement: Strategies for planning for retirement.
    • Investing: Strategies for investing money.
    • Risk & Return: Analysis the trade-off between risk and return.
    • Review & Final Exam: Review materials for the final exam.
    • Biases: Cognitive and emotional biases affecting financial decision-making.

    Housing Costs and Benefits by Lifecycle Stage

    • Young Single: Renting offers flexibility and limited maintenance; purchasing a home has financial and tax benefits.
    • Single Parent: Renting can be suitable for children and flexibility; purchasing can meet family needs.
    • Young Couple, No Children: Renting offers convenience and flexibility; purchasing builds financial security.
    • Couple, Children No Longer at Home: Renting offers convenience and flexibility; purchasing a home with less maintenance is suitable.
    • Couple, Young Children: Renting provides facilities in a family-oriented area; purchasing meets family needs.
    • Retired Person: Renting can meet financial, social, and physical needs; purchasing a low-maintenance home is suitable.

    Housing Alternatives: Renting vs. Buying

    • Renting Advantages: Flexibility, less maintenance responsibility, lower initial expenses.
    • Renting Disadvantages: No tax benefits, limited remodeling opportunities, possible restrictions on pets and activities.
    • Buying Advantages: Financial benefits (investment potential), pride of ownership, tax benefits, more living freedom.
    • Buying Disadvantages: Less financial flexibility, higher living expenses, financial risk due to market conditions, limited mobility.

    Rent or Buy Housing (Different Scenarios)

    • Renting an Apartment: Advantages - easy to move, few responsibilities, minimal financial commitment; Disadvantages - no tax benefits, limitations on remodeling.
    • Renting a House: Advantages - easy to move, less maintenance, more space; Disadvantages - higher utility expenses, limitations on remodeling.
    • Owning a New House: Advantages - no previous owner, pride of ownership, tax benefits; Disadvantages - financial commitment, higher living expenses, limited mobility.
    • Owning a Previously Owned House: Advantages - pride of ownership, established neighborhood, tax benefits; Disadvantages - financial commitment, potential repairs, limited mobility.
    • Owning a Condominium: Advantages - tax benefits, fewer maintenance responsibilities, good accessibility; Disadvantages - less privacy, financial commitment, uncertainty in property value.

    Housing Rental Activities

    • The Search: Select an area, compare comparable units, speak to current and past residents.
    • Before Signing a Lease: Verify the lease’s terms and conditions, seek legal advice, document the condition of the unit, and understand possible liabilities.
    • Living in Rental Property: Maintain the property's condition, address needed repairs promptly, respect neighbors' rights, and be insured.
    • At the End of the Lease: Clean and return the property to its initial condition, collect security deposit documents, and resolve any disputes.

    The Home Buying Process

    • Step 1: Determine home-ownership needs, types of housing, affordability.
    • Step 2: Find and evaluate properties, select a location, work with a real-estate agent, conduct inspections.
    • Step 3: Price the property, determine appropriate market price, negotiate price agreement.
    • Step 4: Obtain financing, determine down payment, investigate mortgage options and rates, apply for mortgage.
    • Step 5: Close the purchase transaction, arrange a closing date, collect necessary documents, final walk-through.

    Conducting a Home Inspection

    • Exterior Facilities: Neighborhood appearance, streets/sidewalks, landscaping, driveway/garage, outdoor lighting/patio, drainage.
    • Exterior Construction: Building materials, foundation, windows, roof/gutters, chimney.
    • Interior Construction: Electrical/wiring, plumbing fixtures, water pressure/heater, heating unit, walls/floors/doors.
    • Interior Design: Room sizes/arrangement, closets/storage, door sizes, kitchen layout/appliances, ventilation, laundry area, bedrooms/accessibility, electrical outlets.

    Calculating Mortgage Payment & Future Balance

    • Calculate a mortgage payment by considering down payment, the amount borrowed, interest rate, loan term.
    • Use online calculators or financial applications for automated calculations.

    Mortgage Amortization

    • A significant portion of the initial mortgage payments is for interest, not principal reduction. As time progresses, the interest portion decreases, and the principal portion increases.
    • Interest costs of a mortgage over the life of the loan can be substantial.

    Affordability Ratios

    • Calculate the monthly mortgage payment you can afford:
    • Banks use affordability ratios to assess how much a borrower can afford to repay their monthly mortgage payment, taxes, insurance, and other debts.
    • Housing expense ratio (25-30% of monthly income).
    • Total expense ratio (33-38% of monthly income).

    Should You Pay Off Your Mortgage Early?

    • Consider prepayment penalties and loss of tax deductions. Prioritize high-interest debts before paying more on the mortgage.

    Key Mortgage Terms

    • APR: Annual Percentage Rate.
    • Down Payment: Portion of the purchase price paid upfront.
    • Collateral: The property being used as security for the loan (in case of default).
    • Fixed-Rate Mortgage: Mortgage with a consistent interest rate throughout the loan term.
    • Adjustable-Rate Mortgage (ARM): Mortgage with an interest rate that adjusts based on market conditions.

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    Related Documents

    AFN 221 Personal Finance - Mortgage PDF

    Description

    Test your knowledge on mortgage concepts as part of the AFN 221 Personal Finance course. This quiz covers key topics related to mortgages, their impact on personal finance, and relevant strategies for effective money management. Assess your understanding and prepare for deeper financial discussions.

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