Lesson 65 - unit 13 Flashcards
What are some ways that the housing industry is an important part of the economy?
It increases demand for complementary goods and services.
How is homeownership important for families?
It affects how much they can save and spend and it affects their retirement.
How does a fixed mortgage work?
For the life of the loan the monthly payment is the same, but the amount of principle you pay goes up and the amount of interest you pay goes down.
What is the cost advantage of a short-term mortgage?
You will pay significantly less interest.
What are banker’s traditional guidelines for approving mortgage applications?
- The families annual income should be at least 3 times the price of the house
- The total principle, interest, property taxes, and insurance shouldn’t be more than 28% of the families gross income
- Their total debt payments shouldn’t be more than 36% of their gross income.
What is PMI?
Private Mortgage Insurance. It pays off the loan if the borrower defaults.
What fraction of owner-occupied homes had mortgages in 1997?
2/3
What are 3 agencies created by the Federal government to encourage homeownership?
- Federal Housing Authority (FHA)
- Federal National Mortgage Association (Fannie Mae)
- Federal Home Loan Mortgage Corporation (Freddie Mac)
What are 2 ways the tax code encourages homeownership?
- You don’t have to pay tax on the income that is used to pay for your mortgage
- When you sell your house you don’t have to pay capital gains on the first $250,000 in increased value.
How can home mortgages have a negative impact on the economy?
- People have to pay a large part of their income on their mortgage and cut back on spending, resulting in reduced demand
- Too much risk could lead to default
- Investors can lose money in mortgage bundles
