Home Finance Essential Math 12 Mr. Morin

Transcription

1 Home Finance Essential Math 12 Mr. Morin Name: Slot: Monthly Mortgage Payments Home Insurance Gross Debt Service Ratio Additional Costs of Home Ownership Property Tax Home Efficiency 1

2 Essential 12 - Home Finance Unit Name: Renting a Home vs. Buying a Home 1) Describe your first realistic apartment using a descriptive paragraph or a sketch. You must identify 4 characteristics. 2) Describe your first house using a descriptive paragraph or a sketch. You must identify 4 characteristics. 3) Make a t-chart to identify 4 positives and 4 negatives about buying a home. 4) Identify costs that homeowners must pay in maintenance, upkeep and repairs. 5) Create a scenario where a homeowner has not kept up with preventative maintenance on a home. Write the financial and personal consequences of not keeping up with maintenance. 2

3 Mortgage Payments Example 1 Calculate the monthly mortgage payments for the following information a) $170,000 mortgage at 6.5% interest over a 25-year amortization period Example 2 Amy has taken out a mortgage over 25 years at 6.0% interest. The mortgage amount is $320,000 and the monthly mortgage payments are $ a) Calculate the total interest incurred during the first month of the mortgage. b) Calculate the total interest paid over the lifetime of the mortgage. Questions 1) Calculate the monthly mortgage payments for the following information a) $230,000 mortgage at 11.5% interest over a 20-year amortization period b) $400,000 mortgage at 4.5% interest over a 15-year amortization period c) $204,700 mortgage at 10.5% interest over a 25-year amortization period 3

4 2) Brian wants to purchase a $270,000 home. He has saved $40,000 for a down payment. a) How much does he need to borrow for the mortgage? b) If the interest rate on the mortgage is 7.0% over a 25-year amortization period, calculate the monthly payment. 3) Rachelle takes out a mortgage for $150,000. a) Calculate the monthly mortgage payment with an amortization of 25 years at 6.75%. b) Calculate the total interest paid over the lifetime of the mortgage in part a. c) Calculate the monthly mortgage payment with an amortization of 20 years at 6.75%. d) Calculate the total interest paid over the lifetime of the mortgage in part b. e) Which mortgage option should Rachelle consider? Please state your reasoning. 4

5 4) Amy has taken out a mortgage over 25 years at 6.0% interest. The mortgage amount is $320,000 and the monthly mortgage payments are $ a) Calculate the total interest incurred during the first month of the mortgage. b) Calculate the total interest paid over the lifetime of the mortgage. c) Write out statements describe how to i) calculate the monthly interest charge ii) calculate the interest charged over the lifetime of the mortgage. 5) Construct an amortization table for the first two months for question 5. (Columns: months, monthly mortgage payment, monthly interest charge, monthly equity payment, total equity, outstanding balance.) Complete the amortization table below. Month Principal Outstanding Monthly Payment Interest Payment Principal Payment March $200,000 $ $ $ April $ $ $ May $199, $ $ June $ ) Explain why having a larger down payment does not necessarily mean that you will finish paying your mortgage in a short amount of time. 5

6 7) Identify or explain four different ways that someone can pay off a mortgage in less than 25 years. Home Insurance Example 1 Sophie is a renter and wishes to purchase comprehensive tenants insurance with a face value of $30,000 with $500 deductible. a) Calculate her premium. b) If Sophie wishes to purchase the same policy with a $200 deductible, calculate her premium. Example 2 Bea is a homeowner living outside of Melita, Manitoba (Area 4). She want to buy $250,000 worth of homeowner s insurance, standard policy. a) Calculate her premium with a $500 deductible. b) Calculate her premium with a $200 deductible. 6

7 Questions 1) What is a deductible? When must someone pay a deductible? 2) What is meant by the word premium? When must someone pay the premium on a policy? 3) a) What is the difference between replacement value and market value? b) Which measure of value is used in home insurance? Why? 4) Insurance companies offer discounts on home insurance based on several factors. Write a brief reason for each discount. Seniors discount Claim free for 5-years Home alarm If owners are mortgage free 7

8 5) Jacob is a renter and wishes to purchase comprehensive insurance with $65,000 coverage. a) Calculate the premium if the deductible is $500. b) Calculate the premium if the deductible is $200. 6) April owns a house in Bird s Hill (Area 2). She wishes to purchase standard insurance worth $250,000. a) Calculate the premium if the deductible is $500. b) Calculate the premium if the deductible is $200. 7) Kathy bought a home 9km away from town (Area 4) She wants to insure the property and her belongings for $215,000. Calculate the annual premium if she purchases standard home insurance. 8

9 Gross Debt Service Ratio (GDSR) Example 1 Paul has a monthly income of $3,700. His mortgage payment is $650 per month. He estimates the annual heating costs to be $2,520. Annual property taxes are $2,220. Calculate Paul s gross debt service ratio. Will the bank lend Paul the money for the mortgage? Questions 1) Mark is looking to purchase a home. His monthly mortgage payment is $1200; monthly heating/utility bill is $180; his monthly property taxes are $270. Mark s gross monthly income is $4250. a) Calculate his GDSR. b) Will the bank lend Mark money to purchase the home? Please state your rationale. 9

10 2) Jorge wishes to purchase a home. His monthly mortgage payment will be $970. The monthly heating bill is $230. Annual property taxes are $3150. Jorge Gross annual salary is $61,000. a) Calculate Jorge s GDSR. b) Will the bank lend money to purchase the home? Please state your rationale. 3) Maggie has her eye on a house worth $230,000. She has $40,000 saved for a down payment. Maggie s gross annual income is $45,000 a) If she takes a mortgage out over a 20 year period at 6.0%, calculate her monthly mortgage payment. b) The monthly heating bill is estimated to be $250, the annual property tax is $4,500. Calculate Maggie s GDSR for this home. c) Will the bank lend her money for the purchase? Why? d) Calculate the gross monthly income that Maggie will need to make in order to have a GDSR of 32%. (within $50). 10

11 4) Barney sees the house of his dreams. His bank calculates this GDSR to be 31.6%. Provide reasons why it may be an unwise decision to purchase this property. 5) GDSR is an indicator that the bank uses to measure if a person s income can meet the obligations of a home. State other factors to why a bank may refuse to lend someone a mortgage, although a person s GDSR is below 32%. Additional Costs of Home Ownership (cost excluding down payment and mortgage) Example 1 Bill buys a buys a house from Chris. The possession date is May 1. The annual property taxes on the property are $4400. a) Who pays the property tax adjustment? b) Who receives the property tax adjustment? c) Calculate the value of the property tax adjustment? 11

12 Questions 1) Brainstorm with a partner and identify all the costs of buying a home. Costs - Before Purchase Costs At the time of Purchase Costs After possession 2) Read the article on the following page. Create a table the lists the additional costs of home ownership in three categories Before the purchase At the time of the purchase After possession 3) In simple language, define property tax adjustment. 12

13 4) Gary takes possession of a home on June 1. The annual property taxes for the property are $3600 and are due June 30. a) Calculate the property tax adjustment that the seller must pay Gary of the home. b) State the rationale of why the seller must pay Gary property tax adjustment. 5) Lindsay takes possession of a home on September 30. The annual property taxes for the property are $7349 and are due June 30. a) Calculate the property tax adjustment. b) Who pays the property tax adjustment? c) Who receives the property tax adjustment? 6) Lawyer s fees are a significant cost of purchasing a home. Discuss the purpose of a lawyer in the process. 7) CMHC mortgage insurance is a necessity for most first-time homebuyers. Bob takes out a $320,000 mortgage which is 95% of the home s value. If Bob must pay an insurance premium of 2.75% of the mortgage amount, calculate the CMHC premium. 13

14 Additional Costs of Buying a New Home ( The key cost consideration for any home purchase is the price of the home itself. When you buy a brand new home from a builder, the cost typically includes the base price of the home (and lot) plus the price of any upgrades you choose, from fireplaces to additional landscaping. In addition, there are other costs that you should be aware of, from legal fees to mortgage insurance premiums, which can apply to a home purchase. Ask your new home builder and your mortgage lender about the specific items and typical costs that will apply to your situation. That way, you can budget for them and proceed with confidence, knowing that you will not be faced with unexpected last-minute expenses. Mortgage insurance. A high-ratio mortgage (80% or more of the total purchase price of the home) must be insured against default. Home buyers pay an insurance premium that typically ranges from 0.5% to 2.75% of the total purchase price. The premium is based on the size of your down payment and can be paid up front along with your property taxes or added to the mortgage amount. Appraisals. Your mortgage lender may ask for a property appraisal, depending on a number of factors. For instance, an appraisal is normally needed for a brand new home that's already built. Surveys. Your lender may also require a property survey to verify boundaries, measurements and structures, and to identify any easements, rights-of-way or encroachments. Alternatively, title insurance may satisfy the lender's requirements. Water certification. If your new home comes with its own well rather than being hooked up to municipal services, your lender may require the flow and quality of the water to be tested and certified. Legal services. The purchase of real estate requires the services of a lawyer (or notary) to search the title, draw up mortgage documents, register new ownership and liens and look after other closing details such as disbursement of funds. You may also want your lawyer to review the contract, or sales agreement, between you and the builder before you sign it. Legal costs vary considerably, depending on lawyers' practices and the complexity of your transaction. Get recommendations and spend a little time comparing firms to ensure you get the best value for your money. Land transfer tax. Some provincial and/or municipal governments tax the transfer of real estate, often calculated as a percentage of the purchase. Ask your new home builder or your lender about requirements and typical costs in your region. Home insurance. Your home must be fully insured before mortgage lenders can release the funds for your purchase. This protects both you and the lender. Moving costs. Determine the amount of work you are willing do yourself, from packing to unloading and setting up in your new home. Contact several moving companies to get an idea of prices and levels of service available. For a more accurate estimate, you can ask a representative to come to your home. Appliances, furniture, drapery. Does the home come with appliances or will you need to buy new ones? Will you need new blinds and drapery for the whole house? Would this be a good time to upgrade your living room set? It's a good idea to budget for these things in advance. Talk to your lender about financing options that can help you afford the things you need to get started in your new home. Home maintenance equipment. Do you have the equipment you need to maintain your home properly? Consider your needs throughout the seasons, from lawnmower to snowblower. Will you be able to purchase equipment as the need arises? Can you include it in your initial investment in your home, or will you require additional financing? 14

15 Property Tax Example 1 The Clement family owns a home with a house assessment of $210,000 and a land assessment of $70,000 with 50 feet of frontage, a) Calculate the total portioned assessment municipal tax rate is 16.1 mills the provincial school tax is 3.11 mills the RETSD school tax is mils local improvement Asphalt Surfacing calculate the total tax payable. Questions 1) Identify the parties who receive property tax (general property tax, school property tax). 2) Identify the day that taxes are due in Winnipeg. 15

16 3) The Earnest family owns a home with a market assessment of $250,000 and a frontage of 50ft. a) Calculate the total portioned assessment. If the municipal tax rate is 24.2 mills the provincial school tax is mills the RETSD school tax is mils o local improvement concrete sidewalk b) calculate the total tax payable. 4) Mark bought a house with a total assessed value $320,000. With a frontage of 60ft. municipal tax rate is 22.1 mills the provincial school tax is 4.11 mills the RETSD school tax is mills local improvement i) Land Drainage System ii) Ornamental Lighting Calculate the total tax payable. 16

17 5) The Jays own a house with a total portioned assessment of $250,000 and 55ft of frontage. The municipal tax rate is 24.9 mills and the education rate is 16.1 mills. Additionally, there are two local improvements: Concrete Street Paving and Ornamental Lighting. The Manitoba Property Tax credit is $750. Calculate the total tax payable. Home - Energy & Water Efficient Visit While on this page search Home Energy Efficient Read about the 11 steps on Making a Home Energy Efficient. Pick 4 of these step and write a brief explanation about it. Step Explanation 17

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20 Property Improvement Term Cost per Foot ($) Asphalt surfacing roadways 10 years Boulevard construction 3 years 3.60 Concrete sidewalk 5 years 3.80 Concrete Street Paving 10 years Granular Surface Lane 3 years 7.43 Land Drainage System 20 years 4.53 Lane Lighting 3 years 2.45 Lane Oiling 1 year 4.82 Ornamental lighting 3 years 3.55 Sewer/Waste Renewal 20 years 3.59 Installation of Water Main 10 years 5.07 % 20