Ch. 8,9,10 Finance

Price discrimination

practice of charging a different price for the same product

Quantity discounts

a lower price so that a higher volume can be bought

Caveat Emptor

“Buyer Beware” in Latin

A lease

a long-term rental agreement

Buyout option

the leaser has the option to buy the agreement

Manufacturer’s Suggested Retail Price (MSRP)

sticker price

Warranty

a legal promise about the quality of the product, made for a certain period of time

Lemon laws

laws that protect customers

What do Lemon laws do?

regulate sales term, purchase cancellations conditions, and warranty requirements

Consumer purchases

items used in daily living

By making an operating budget…

you can plan to consume your finance your consumption without creating extra costs of borrowing money

buyer’s remorse

regret on making a useless purchase

Before you buy you should

• You should identify the necessity of the product

• Identify the type of market you are buying from

Merchandise of all kinds can be bought

in-person or online

Auctions

are open negotiation between seller and buyer

The more choices you have

the better chances of finding satisfaction

Brokers/Middlemen

can add value to your purchase process

What do broker’s do?

Give you information in the pre-purchase stage or provide convenience during purchase process

Certain areas will charge different prices based on their services,

because their location of convenience play roles

Cooperative stores

owned and managed collectively and may provide goods or services that would otherwise not be available

In Western culture

consumer prices are non-negotiable

The more a purchase is allowed for negotiation

the more satisfaction the consumer may get

When in doubt

consumer will choose the brand most familiar to them

A warranty with a product can be valuable

if it lowers the expect repair/maintenance costs

Commodity price can fluctuate…

depending on the season

Retailers will offer discounts

to attract costumers

As a buyer,

you should know the true value of a purchase

Your opportunity costs and cost of decreasing your liquidity

is the cost of the car/asset

At end of lease

you can typically by the car/asset outright or buy or lease another car/asset

Warranty

a promise about the longevity of the device

Rent vs. buy breakeven period

means that the cost of renting and owning a house is the same at breakeven time

Multiple unit dwelling

single building designed for multiple families

Cooperative housing

a complex owned by a nonprofit, residence don’t own but rent shares in the cooperative organization

PITI

Principal, Interest, Taxes, Insurance

What does it mean PITI?

the cost of ownership

Forclose

Your lender can evict you and sell your house to recover what you owe

Down Payment

percentage of the purchase price paid in cash upon purchase

Fixed-rate mortgage

the interest rate remains the same over the entire maturity

Mortgage amortization

monthly payment follows a schedule until it is paid off

Adjustable-rate mortgage

the interest rate and the monthly payment will change with index market rate

Rate cap

ARM interest rates cannot rise more than 2% at a time

Payment cap

limits the amount by which the payment can increase or decrease

Negative amortization

If mortgage payment capped and interest rate rise, you end up paying more than you owed

Second mortgage

allows the borrower to borrow any equity in the home

Home improvement loan

is a type of home equity loan

Home equity loan of credit

revolving credit, collateral for a loan

Reverse mortgage

a bank buys the residence and then pays off the mortgage to the senior

An independent appraisal

the amount of the mortgage is reasonably given amount

Title search and contract for title insurance

the company will research for any claims or deeds, purchase cannot go forward if deed cannot be transferred

Purchase and sale agreement

specifies the term of sale

Nonrefundable deposit or earnest money

payment when purchase and sale agreement is signed

Escrow

payment held in a separate account and then applied during closing costs at settlement

Conveyances

property/appliances that come with the sale

Early payment means

paying down your mortgage early

Early payment penalty

fines the borrower for repaying early

Refinancing

entering a new mortgage and using that to pay off the older mortgage

Forbearance

agreement between the borrower and lender to delay foreclosure

As income rises,

the tax benefit rises

2017 Tax Cuts and Job laws

made renting more attractive, financial benefit of owning decreased

Making an educated guess on whether you want to rent or buy, you must consider…

future costs, house appreciation, and invetment alternatives

Two major factors on renting or buying

rent inflation and house appreciation

Breakeven

renting and owning is the same after 8 years

Mobile home

homes that can be assembled at the site

Condominium

homeowner owns a multiple-unit dwelling

A lender or mortgage broker will…

look at your income, current debts, and credit history to assess your ability to assume a mortgage

Before you buy a house, you need to…

get a clear understanding of what you can afford

It is best to hire a ____________ when surveying the functionality of a house

a home inspector (see American Association of Home Inspectors)

If local economy is dominated by one consumer…

it would make the housing market will be sensitive to the fate of the industry or large employer

if interest rates and there is liquidity in credit markets

it will be easier for buyers to borrow

Demand for housing relies on

the availability of credit for the housing market

If the down payment is less than 20 percent

buyer has to pay private mortgage insurance

Private mortgage insurance

insures the lender against the costs of the defaults

Cash will be needed for….

closing costs

The monthly payment

is the ongoing cash flow obligation

Your ability to make the monthly payment determines…

your ability to keep the house

in the early years of your mortgage

it is mostly interest payments

in later stages of your mortgage

it is mostly principal payments

Common types of ARM adjust

once every 6 months or a year

If the payment is capped

the interest rate rises

Balloon mortgage

offers a fixed payment for a few months and then one large payment

Points

points are paid to a lender as a form of prepaid interest when the mortgage originates and are used to decrease the mortgage rate

Closing may take place where?

in the office of the company handling the transaction or at the registry of deeds

House and property apart of property care

cash flow obligations

Lying about income, debt, and purpose of owning property

can result in mortgage penalties

Speculative risks

offer of chance or loss

Pure risks

accidental or unintentional events

Risk shifting

selling a risk to someone who will then assume the risk and its consequences

Negligence

failure to take usual financial precautions

strict liability/vicarious liability

responsibility for intentional and unintentional events

Endorsements

can be added to a homeowner’s possession in order to cover valuable possessions

Actual cash value

tries to estimate the products actual value at the time of its loss

Replacement costs

cost replacing an item

Guaranteed replacement costs

FULL cost of replacing the item

extended replacement cost

replacement cost that is capped

Bodily injury liability

refers to financial losses by paying for the accident you caused

Medical payment coverage

Covers injuries that were made to people in your car and yourself

Uninsured motorist protection

covers your injuries if person who caused does not have the funds to cover it

Property damage liability

covers the cost of someone’s property from the damage that you made

Collision

covers the cost of the damages made to your own property

Comprehensive physical damage

covers the cost of anything other than damages