2. Rental Option
• The best rental
option for Sue
and Dan would
be an apartment.
They are less
expensive than
renting a house,
and many times
utilities will be
paid by the
managers or
included within
the rental fee.
3. Non-Traditional Purchase
• The best
purchase for Sue
and Dan would
be a condo. They
are less
expensive than a
house. They are
usually located
within walking
distance to
grocery stores
4. Single-Family Residence
This would offer much
more privacy: no
common walls, less
noise from neighbors.
It usually includes a
yard, which could also
be used for an
expansion later on
when they have
money. Also they
would have
homeowners
insurance.
5. Apartments and other rental
housing
•PROS:
Little financial commitment,
low maintenance, affordable,
and no long term
commitment.
•Cons:
• Lack of choice. Some
examples would be not
being able to remodel the
space the way that you
would like it and not being
able to have a pet. (Keown, Arthur
2013)
7. House
•Pros:
Privacy, space, have
power over style, home
improvement, and
decoration. You can also
build equity and wealth.
Cons:
Repairs, maintenance,
and renovations.
(Keown, Arthur 2013)
(Culrure.mulching.files.wordpress.com, 2012
8. This should as discussed include a
discussion of buying vs. renting for
this family
Buying
• Rent wont raise over time
• It is possible for your
property appreciate
• You can use a home equity
loan as a source of cash
• You can build your equity
over time
• You have the option of
being able to redecorate,
remodel, and landscape if
you want to
• There are tax advantages
like including property taxes
and interest in your
Renting
• There is no property taxes
• There is no down payment
• There is no grounds
keeping
• No risk of falling house
prices
• You don’t have to pay for
maintenance or home
repairs
• The risk and losses of
housing price depreciation
does not affect you
• You don’t have to pay taxes,
upkeep, mortgage, or
insurance. Just rent
• You don’t have to pay
9. Compare the monthly costs of the
two potential home purchases
30 year monthly mortgage
• Home price $180,000
• Down Payment 5%
• Interest Rate 4.0%
• Principal & Interest portion of payment
$816
• Private Mortgage Insurance $114
• Taxes & Insurance, monthly 2.0% $300
• Total Monthly Payment $1230
(Bluejay, Michael, 2014)
15 year monthly mortgage
• Home price $180,000
• Down Payment 5%
• Interest Rate 4.0%
• Principal & Interest portion of payment
$1265
• Private Mortgage Insurance $114
• Taxes & Insurance, monthly 2.0% $300
• Total Monthly Payment $1679
(Bluejay, Michael, 2014)
10. Should they move?
• # 1: Differentiating need
from want
• # 2: Do your homework
• How much do they need for
a 20% down payment, how
long will it take for them to
save that much?
• Create a chart like Figure
8.4 on page 249 of your
book
• What is the maximum
mortgage the are likely to
qualify for?
• What type of mortgage
should they get, 15, 20, 30
year, fixed/variable,
government back
If Sue and Dan were
to purchase a new
house for the
amount they could
refinance and
include their credit
card and car debt
($101,880) they
would need to save
$20,376.00 for the
20% down payment.
With Sue recently
losing her job and
11. Paying it off
• If they were to consolidate their debt, they would pay a
total of $156,340 over the life of a 15 year loan at 6.16%
interest. A 30 year loan for the same amount and
interest rate would be $121,803 in interest payments
alone – more than double the amount paid in interest
for a 15 year loan!
• Consolidating their debt and refinancing with a fixed
interest rate for 15 years would help lower the interest
rate and would be less interest over the life of the loan
as well as provide a lower overall mortgage payment of
12. Refinancing at a 15 year payoff would save $296.45 on the house payment
alone, add the $200 minimum credit card payments and $296 car payment and
the family would have an extra $792 in their pocket a month! Currently, nearly
½ of Dan’s income goes towards paying just the mortgage but if they were to
refinance, monthly payments would be just under 1/3 of Dan’s current
immense since Sue recently lost her job and is unable to work. and include
the credit card and car debt!
Picture: (Bankrate 2014)
The amount saved monthly would benefit the family immensely since Sue
recently lost her job and is unable to work. (Keown, Arthur 2013)
13. What is the best immediate housing choice
for this family? How long are they likely to
live at that location? What should there
next move be?
The best immediate housing choice
is to remain living in their current
house and consolidate their debt and
refinance the house. With the loss of
Sue’s job and current debt it would
be unwise to purchase a more
expensive house and a move would
create more instability to their
finances. Their credit score is
somewhat low so they should work
towards consolidating their debt,
creating a budget, paying bills on
time and working towards a better
FICO score.
(Keown, Arthur 2013)
14. Summary
It’s difficult to know what amount Sue and Dan originally
financed the house for but a monthly payment of
$1,165 is high considering they only currently owe
$92,000. Based on their credit score, they should be
able to get a mortgage interest rate around 6.16%.
Since Dan only has 5 more payments towards the payoff
of his car, they may want to consider not including the
car in the consolidation refinance loan if the interest is
lower than 6.16%. However, according to the
“Representative Rates and Monthly Payments for
Different FICO Scores” chart it’s likely that his interest
rate is around 11.797% and it should be included in the
consolidated refinance.
15. According to their current credit card debt and interest rate,
they would want to consolidate the credit card debt in a home
refinance and take advantage of lower interest rate as well as
cut up the credit cards. If they continue to pay only the
minimum payments of $200, with one credit card interest rate
at 24.8%, assuming the remaining three credit cards are at a
rate of 14.9%, and assuming the total amount owed is divided
evenly between the four credit cards, $2,100 each, it would
take 18 years and 3 months for the credit cards to be paid.
They would end up paying $11,494.39 in interest alone! (Keown,
Arthur 2013)
Picture: (Banktrate 2014)
17. Picture: (Banrate 2014)
When considering refinancing the home, Sue and Dan have several
options. They would want to consider a 15, 20, or 30 year loan (assuming
Sue and Dan can get a 6.16 interest rate for either) overall a 15 year loan
will save a significant amount of interest over the term of the loan.
Regardless of the term and whether they financed only the remaining
balance of the house or consolidate the car and credit cards in the loan as
well, payments would be less than what they currently pay towards
credit card debt, car and house payment each month.
(Keown, Arthur 2013)
18. Picture: (Bankrate 2014)
Sue and Dan also need to consider the amount to refinance – need vs. want.
Their home is currently valued at $105,000 but the total of the house, car, and
credit cards is only $101,880. The interest rate between financing just the
current amount owed on the house versus consolidating the car and credit
card debt would be an extra $3,666 in interest (total interest paid for
$101,880 loan minus (-) total interest paid for $92,000 loan minus (-) interest
charge for credit cards). Although the overall interest charge would be higher
for consolidating all of their debt, two major advantages would be that the
interest paid could be used as a tax deduction and less money would be spent
on a monthly basis. (Keown, Arthur 2013)
19. With the loss of Sue’s income and the added cost of
monthly medication it would be wiser to consolidate the
car and credit cards with the home refinance and save
on overall monthly cost during their hardship.
Picture: (Bankrate 2014)
Also, Sue and Dan should consider Principle 7 (Protect
yourself against major catastrophes) and create a will
in order to protect their assets and children in case
either of them were to die. (Keown, Arthur 2013)
20. References
• Bankrate. "Will You save by Refinancing Your Mortgage?"
Refinance. (2014) Web. 02 Apr.
2014.http://www.bankrate.com/calculators/mortgages/refina
nce-calculator.aspx
• Bluejay, Michael. “How to buy a house” Figuring the monthly
payment in a mortgage (2014) Thur. 04 Apr. 2014
http://michaelbluejay.com/house/figurepayment.htm
• Keown, Arthur. “Personal Finance Turning Money into
Wealth." Finance (2013): 232-286. Managing your Money.
Thur. 04 Apr. 2014.
