Big Purchases and Insurance

define principal

original amount of money borrowed or invested, including interest or fees.

Used car pros

-principal is much less on used car on new car, so you still pay less than used car than new car.

-used cars cost less to insure

Used car cons

-depreciation; car gets older and loses value

-interest is more than new cars because its riskier for the vendor; difficult to appraise accurately.

Home equity equation

Value of your home - amount owing on your mortgage = home equity

Rule of 3

-tells you how much you are able to spend on a house

-household gross income (before taxes) x3 is less than or equal to a home you can afford.

28-36 RULE

-assesses debt

-Monthly mortgage payment should be less than or equal to 28% of your monthly income.

-total debt payments should be less than or equal to 36% of your monthly budget.

Recommended home down payment

-20% down payment is recommended when buying a home (not everyone does it)

define foreclosure

-if you arent able to pay your monthly mortgage, the bank takes your house/property

normal term length of mortgage

-30 years + a couple thousand dollars in interest

define premiums (insurance)

-the amount you regularly pay to keep your insurance policy active

-’subscription fee for having coverage’

define deductable (insurance)

-amount you have to pay out of pocket for a covered claim before your insurance starts to pay

-ex. $500 deductible, and a $2,00 covered repair, you pay the first $500, insurer would cover $1,500.

Define co-pay

-fixed amount you pay out of pocket for a healthcare service or prescription at the time of service

-co-pays usually don’t count toward your deductible, but do count for your out-of-pocket maximum.

define beneficiaries

-applies to life insurance

-person designated to receive payout or benefits from insurance policy when a claim is made.

-usually after policyholders death

define term and limit (insurance)

TERM - length of time the insurance policy is active and provides coverage

LIMIT - the maximum amount the insurance company will pay for a covered loss ex. $1,000,000 is your annual limit, your insurance company wont pay more than that in a year.

define security deposit (renting)

-money that the renter deposits with the landlord in case they damage the apartment or room. 

-This is returned to the tenant when they move out if it isn't used by then.