Chapter 6 Owning a Home or Car

1. Chapter 6 Owning a Home or Car

2. Chapter 6 Owning a Home or Car 6-1 Home buying requires: Down payment – usually a given % amount of cash….this shows the bank you really want this house and are willing to pay for it.

3. The balance of the purchase price (after the down payment) is usually borrowed through a mortgage loan taken with a bank or other lender. • The money borrowed is called the principal and interest must be paid on the loan. • The length of a mortgage loan varies from 15, 20, and 30 year are most common.

4. Closing Costs : – these are fees and expenses paid to complete the transfer of ownership of a home. Closing costs range from 3% to 6% of the purchase price of the home and include: legal fees, title insurance, appraisal and inspection fees, land surveys, …etc.

5. To calculate purchase price: Purchase Price • Down Payment Mortgage Loan/Borrowed Amt Down Payment + Closing Costs Cash Needed to Buy a Home

6. Look at page 210 Example 1 • $64,500 • $5,400 • Now do page 71 in your workbook.

7. Mortgage Rates: 1. Fixed Rate Mortgage – your interest rate stays the same over the time period of the loan. 2. Variable/Adjustable Rate Mortgages – interest rates can change during the time period of the loan. **Usually the initial interest rate is lower than fixed, however, the lender is allowed to increase or decrease the rate at specified intervals.

8. Refinancing a Mortgage – when you take out a new mortgage and use that money to pay off the old mortgage. You must also pay new closing costs that are incurred.

9. 6-2 Renting or Owning a Home Cost of Ownership…Owning a home comes with expenses: • Property taxes • Repairs • Maintenance • Utilities • Insurance • Trash pick up…etc

10. Two less obvious expenses: • Depreciation • Loss of Income on the money invested in the home.

11. Depreciation • The loss of value of property caused by aging and use….ex: roof, heating costs, not updating • Most housing depreciates slowly at about 1% to 4% of its original value per year. • Amount of depreciation can’t be calculated until a house is sold

12. Loss of Income on the money invested in the home. • Occurs because the money initially invested in buying the property (down payment and closing costs) could have been deposited in a savings account and earned interest. Then why own? …people can include the interest they pay on their home mortgage and property taxes they pay on their tax return….this reduces taxable income…you pay less taxes and have equity in a house.

13. Equity The difference between what is owed on a home and its value.

14. Look at page 217 Example 1 $5,244 mortgage interest $2,350 property taxes $360 Insurance $1,240 depreciation $1,710 utilities $1,535 maintenance, repairs $1,270 loss interest $13,709 total expenses $1,428 tax reductions $12,281 net cost for the first year

15. Look at page 218 Example 1 • $16,572.00 • $12,629.00 • Now do page 71 in your workbook.

16. Costs of Property Rental Some people can’t afford to buy or don’t want the hassle of maintenance…so they rent Renters: • Usually pay a one time security deposit in addition to their first month’s rent…this covers any damage done while living there…if there is no damage, the money is returned. • Sign a lease or rental agreement that they will be there for a stated period of time.

17. Look at page 218 Letters C and D • $16,572.00 • $12,629.00 • Now do page 71 in your workbook.

18. Homework: Page 73 in your workbook – due Monday. Happy St. Patrick’s Day!!!

19. Compare Renting and Owning Homes When you rent, you consider the monthly rent as an expense, however when you pay your mortgage, that is not considered an expense, but the interest, utilities and everything else is.

20. 6-3 Property Taxes Property taxes – taxes on the value of real estate such as homes, business property, or farm land. • Usually collected annually or semiannually by the tax department of the town or city you live in.

21. Services paid for by taxes: • Schools • Government operations • Fire protection • Police protection • Parks • Road maintenance

22. Taxes are paid based on the assessed value… • An assessed value is usually calculated by local tax assessors and is usually a percentage of the actual value of your house… • Ex:Bill Watson’s home is valued at $150,000.00. It is assessed at 40% of its market value or $60,000.00. • Taxes are then calculated on the assessed value of $60,000.00

23. Local tax districts determine the tax rate needed to pay for the services they provide. • They estimate their expenses for the coming year and prepare an expense budget. They also estimate income from sources other than property tax, such as licenses, fee, fines, rents, state aid and so on. • The difference between the total budget and the income from other sources is the amount that must be raised by the property tax.

24. Local tax districts then determine the decimal tax rate, which is the tax rate at which property is to be taxed. • Decimal tax rate =amount to be raised by property tax Total assessed value • Example 1 from page 224: $6,000,000 - $1,800,000 = $4,200,000(property tax needed) $39,999,000 = .107692

25. Tax rates per $100 or $1,000 • To find the tax due on property when the rate is in $100 or $1,000, first find the number of $100 units or $1,000 units in the assessed value. Then , multiply the numbers of units by the tax rate to find the tax due. • Read Example 2 on page 225

26. Look at page 225 Example 1 • $1,569.12 • $4,953.60 Page 226 • $3,380.40 • $348.71

27. Homework: Page 75 in your workbook – due Wednesday

28. 6-3 Property Insurance We will cover insurance when we cover car insurance.

29. 6-5 Buying a Car MSRP – Manufacturer’s Suggested Retail Price….also known as sticker price Car buyers usually do not pay this price…they negotiate a price to pay based on trade in, rebates, and loan options.

30. Words to know… • Purchase Price –refers to the price negotiated by the dealer and the buyer. This price includes the car and any options installed by the dealer • Delivered Price – also called “out the door” price…this includes purchase price, sales tax, registration fees less the rebate. • Balance Due – what the customer has to pay for their car….less discounts, rebates, down payments or trade-ins..

31. Base price – price for a model with just the standard features. Warranty – this comes on all new cars and usually covers things that break 36 months or 36,000 miles…this doesn’t include maintenance. Extended warranty – provides extra coverage for a number of months and mile Rebates Delivered Price Down Payment Balance Due Purchase Price Sales Tax Registration Fees Non-taxable items

32. Look at page 241 Letters C and D • $21,354.87 $15,354.87 • $17,398.28 $15,774.48 • workbook.

33. Please take out the following: Calculator Paper/Notebook Pen/Pencil Workbook

34. 6-6 Car Purchases and Leases The delivered price of a car purchase may be paid in cash, however, most people make a down payment and take out installment loans.

35. 6-6 Car Purchases and Leases The delivered price of Sue’s car is $23,560. She makes a $2,000 down payment and pays the balance in 48 monthly payments of $560. What total amount did Sue pay for the car, AND what was the finance charge? 1. $2,000 + $26,880 (560 x 48) = $28,880..paid for 2. $28,880 - $23,560 = $5,320…finance charge

36. Let’s Solve… Steve Rubin bought a used truck for $9,650. He paid for the truck with a $2,650 down payment and 36 monthly payments of $234.30. What total amount did the truck cost? $11,084.80

37. Let’s Solve… Angie bought a luxury car for $47,851 and made a $4,500 down payment. She got a special loan rate of 2.1% for 60 months. Her monthly payments were $761.74. What was her finance charge on this car? $2,353.40

38. Cost of Leasing A lease is a contract between the car company and the customer. Similar to renting a car for a long period of time. Conditions: • Return in good condition • Usually within a stated # of miles • Payment and time frame is agreed to • Required down payment • You must still pay for registration and processing fees. • You usually have the option of buying the car at the end of the lease period. (Residual Value)

39. Compare Leasing and Buying When comparing the two, you must add the residual value to the cost of leasing since you assume you will buy at the end.

40. Wilbur and his dealer negotiated a price of $27,400 for a new car. He can lease the car for $496 for 36 months and buy it at the end of the lease for its residual value of $16,200. If he buys the car now his month loan payment will be $822 for three years after making a $2,000 down payment . What is the total cost of purchasing the car under each plan? Which is less expensive? Lease: 36 x $496 = $17,856 $17,856 + $16,200 = $34,056..cost of leasing Buy: 36 x $822 = $29,592 $29,592 + $2,000 = $31,592…cost of buying Difference ….34,056 – 31,592 = 2,464 ****Buying is less expensive!!!!

41. Homework Workbook Page 81

42. 6-7 Depreciating a Car A car loses value as it grows older…the loss of value is called deprecation. The total depreciation on a car is the difference between its original cost and its resale, or trade-in value. Depreciation = Original Cost – Trade-in or Resale Value

43. 6-7 Depreciating a Car When you buy a car, you can only estimate what the depreciation will be. The actual amount of depreciation will be known only when the car is sold or traded in.

44. 6-8 Cost of Owning a Car Car Insurance: There are 4 basic types of insurance or coverage for motor vehicles that protect you against the risk of financial loss:

45. 6-8 Cost of Owning a Car • Bodily Injury – covers your liability for injury to others. • Property damage – covers damage to other people’s property including their vehicles. • Collision – covers damage to your own motor vehicle. • Comprehensive damage – covers damage or loss to your vehicle from fire, theft, vandalism, hail, and other causes.

46. 6-8 Cost of Owning a Car Read page 256 in your textbook Page 257… • $664.85 • $1,064.50

47. Costs of Operating Cars… The total operating cost for a car is the sum of all the annual expenses of using the car. These expenses include: • Insurance • Gas • Oil • License • Inspection fees • Tires • Repairs • Garage rent • Parking fees • Taxes • Depreciation • Interest lost on down payment

48. 6-8 Costs of Operating a Car Page 257… • $4,705.00 • $ 2,158.00

49. Homework Workbook Page 83 and 84 Please get this out….

50. Page 83 Answers…