Transcript Chapter 5 - Making Automobile and Housing Decisions
Chapter 5 – Making Automobile and Housing Decisions
COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 5 - Learning Goals
Learning Goals
LG 1 - Implement a plan to research and select a new or used automobile.
LG 2 - Decide whether to buy or lease a car.
LG 3 - Identify housing alternatives, assess the rental option, and perform rent-or-buy analysis.
LG 4 - Evaluate the benefits and costs of home ownership and estimate how much you can afford for a home.
LG 5 - Describe the home-buying process.
LG 6 - Choose mortgage financing that meets your needs.
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Internet Links and On-Line Resources
Web Links
• • • • • • • • • • • • • • 10 steps to buying a car General Motors Online Canoe Money Car Loan Rates AutoTrader online Insurance Bureau of Canada on auto insurance Black book price for cars according to Canadian Driver Leasing versus buying for the same car Housing prices in Canada – Canadian Real Estate Association Mortgage Qualifier calculator at Dinkytown Web Canada Mortgage and Housing Corporation (CMHC) guide to buying, renting and financing.
What renovations will add the greatest value to your home – Reader’s Digest Multiple Listing Service 10 things not to do before closing – realestate.com
Mortgage loan insurance from Genworth Financial Canada (formerly GE Mortgage Insurance Canada)
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Terms
Key Chapter Terms
Agreement of purchase and sale
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Terms
Definitions
Depreciation
The loss in the value of an asset such as an automobile that occurs over its period of ownership; calculated as the difference between the price initially paid and the subsequent sale price.
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Terms
Definitions
Sales Contract
An agreement to purchase an automobile that states the offering price and all conditions of the offer; when signed by the buyer and the seller, the contract legally binds them to its terms.
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Definitions
Lease
An arrangement in which the lessee receives the use of the car (or other asset) in exchange for making monthly lease payments over a specified period.
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Terms
Definitions
Closed-end Lease
The most popular form of automobile lease, often called a ‘walk-away’ lease because at the end of its term the lessee simply turns in the car, assuming the preset mileage limit has not been exceeded and the car hasn’t been abused.
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Definitions
Open-end Lease
An automobile lease under which the estimated
residual value
of the car is used to determine lease payments, if the car is actually worth less than this value at the end of the lease, the lessee must pay the difference.
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Definitions
Residual Value
The remaining value of a leased car at the end of the lease term.
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Definitions
Capitalized Cost
The price of a car that is being leased.
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Definitions
Purchase Option
A price specified in a lease at which the lessee can buy the car at the end of the lease term.
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Terms
Definitions
Condominium (condo)
A form of direct ownership of an individual unit in a multiunit project in which lobbies, swimming pools, and other common areas and facilities are jointly owned by all property owners in the project.
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Definitions
Cooperative Apartment (co-op)
• An apartment in a building in which each tenant owns a share of the corporation that owns the building.
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Terms
Definitions
Rental Contract (lease agreement)
• A legal instrument that protects both the lessor and the lessee from an adverse action by the other party; it specifies the amount of the monthly payment, the due date, penalties for late payment, the length of the lease agreement, deposit requirements, fair wear and tear definitions and provisions, the distribution of expenses, renewal options and early termination penalties, and any restrictions on children, pets, subleasing or using the facilities.
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Definitions
Down Payment
• A portion of the full purchase price provided by the purchaser when a house or other major asset is purchased; often called equity.
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Definitions
Loan-to-value Ratio
• The maximum percentage of the value of a property that the lender is willing to loan.
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Definitions
Mortgage Loan Insurance Terms
• An insurance policy that protects the mortgage lender from loss in the event the borrower defaults on the loan: It is required by federally regulated lenders when the down payment is less than 25 percent of the purchase price of the home. Its intent is to encourage loans to home buyers who have very little money available for a down payment and closing costs.
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Definitions
Closing costs
• All expenses that borrowers ordinarily pay at the time a mortgage loan is closed and title to the purchased property is conveyed to them.
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Definitions
Gross debt service (GDS) ratio
• The ratio of the borrower’s monthly housing costs (mortgage payments, heating costs, and taxes) to their monthly gross income.
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Definitions
Total debt service (TDS) ratio
• The ratio of the borrower’s total debt service costs (housing costs plus other debt service) to their monthly gross income.
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Definitions
Property taxes
• Taxes levied by local governments on the
assessed value
of the real estate.
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Definitions
Homeowner’s insurance
• Insurance sometimes required by mortgage lenders to cover the replacement value of a home and its contents.
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Terms
Definitions
Multiple Listing Service
• A comprehensive listing, updated daily, of properties for sale in a given community or metropolitan area that includes a brief description of each property and its asking price with a photo.
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Definitions
Prequalification
• The process of arranging with a mortgage lender, in advance of buying a home, to obtain the amount of mortgage financing the lender deems affordable to the home buyer.
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Definitions
Offer to purchase
• A written contract setting out the terms under which the buyer agrees to buy the home. If the Offer to Purchase is accepted by the seller, it becomes the agreement of purchase and sale.
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Definitions
Agreement of purchase and sale
• The document that sets out the terms and conditions agreed to between the buyer and the seller of a property.
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Definitions
Good faith deposit
• Money pledged by a buyer to show good faith when making an offer to buy a home.
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Definitions
Contingency clause
• A clause in a real estate sales contract that makes the agreement conditional on such factors as the availability of financing, property inspections, or obtaining expert advice.
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Terms
Definitions
Title check
• The research of legal documents and courthouse records to verify that the seller conveying title actually has the legal interest he or she claims, and that the title is free of all liens and encumberances.
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Definitions
Mortgage loan
• A loan secured by the property: In the event of default by the borrower, the lender has the legal right to liquidate the property to recover the funds it is owed.
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Terms
Definitions
Mortgage broker
• A firm that solicits borrowers, originates primarily conventional loans, and places them with mortgage lenders; the broker merely takes loan applications and then finds lenders willing to grant the mortgage loans under the desired terms.
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Definitions
Fixed-rate mortgage
• The traditional type of mortgage in which both the rate of interest and the monthly mortgage payment are fixed over the term of the loan.
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Definitions
Variable-rate mortgage
• A mortgage on which the rate of interest is adjusted in accordance with market interest rate movements.
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Definitions
Interest-rate cap
• On a variable-rate mortgage, the limit on the rate of interest that can be charged during the term of the loan.
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Definitions
Convertible mortgage
• A variable-rate mortgage loan that allows borrowers to convert from a variable-rate to a fixed-rate loan.
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Definitions
Conventional mortgage
• A mortgage offered by a lender who assumes all the risk of loss; typically requires a down payment of at least 25 percent of the value of the mortgaged property.
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THE END!
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