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28 Cards in this Set

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  • Back
As a rule of thumb, your PITI costs shouldn’t exceed how much ?
PITI should not exceed 28 percent of your gross income and debt repayment from all sources to be between 33% and 36% of gross income
Many planners estimate maintenance and operation of a home to be?
1% of the fair market value (FMV) of a home.
How much home can you afford to purchase?
You should spend no more than 25 percent of your after-tax income on housing expenses.
Normally a home purchase price should be how many times after-tax annual income?
About two and one-half times after-tax annual income.
For all interest on a second mortgage, such as a home equity loan, to be deductible, what must be true?
Total mortgages must be both less than the market value of the home and less than $100,000 plus the cost of improvements and your remaining acquisition indebtedness.
What special tax treatment is accorded capital gains on a home sale?
You can exclude up to $250,000 ($500,000 if filing jointly) of the gain from your taxable income. This exclusion is applicable to each sale of a home if you have owned the home for two years of the last five years and have used it as your main home for two of the last five years. The exclusion is proportionately reduced for shorter periods of ownership under certain exceptions.
The average American family moves how often?
Once every 7 years.
When should home refinancing should be considered?
If fixed rates fall more than 2% and the current plan is to be in the house at least 3 more years.
What is the mortgage refinancing Cost Benefit Analysis?
Step 1: Add together points, loan origination fee, title search and insurance, recording fees, appraisal and home inspection fees.

Step 2: These costs are added to the current mortgage balance.

Step 3: Determine one year's interest on your current mortgage.

Step 4: Determine one year's interest on the new mortgage balance.

Step 5: Calculate the first year's savings.

Step 6: Determine how long it will take to repay the closing costs. Take the closing costs and divide them by the monthly savings.
How many times the original amount borrowed can a typical mortgage commit you to in interest payments?
Roughly three times the original amount borrowed.
What are the major mortgage loan types and considerations?
A Fixed-Rate Mortgage Loan – Market rates do not change the monthly payment. There are two types of fixed mortgage loans.

An Adjustable-Rate Mortgage (ARM) Loan – allows the interest rate to fluctuate according to the level of current market interest rates within limits at specific intervals.

Adjustable-Rate vs. Fixed Rate – The basis of personal financial management is control and planning. A fixed-rate mortgage is better than an ARM because the payments are known in advance.

Refinancing – Closing the current mortgage and creating a new mortgage at a lower rate. This will incur closing costs that should be considered as part of the decision.

Reverse Mortgage – Loans available to older homeowners with different payment options. The home is eventually sold to pay back the loan.
What is the cost of operating a car?
On a per-mile basis, the total cost per mile of the mid-size car driven 20,000 miles per year is about 46 cents. This consists of 11 cents per mile in operating costs and 35 cents per mile in ownership costs.
The Federal Educational Financial Aid expects how much of parent assets to be contributed each year?
Parents are expected to contribute 5.6% of their assets each year.
The Federal Educational Financial Aid expects how much of student assets to be contributed each year?
Students are expected to contribute 35% of their assets each year.
What is FAFSA?
Free Application for Federal Student Aid
The FAFSA Expected Family Contribution (EFC) excludes what part of the parent's assets?
Home Equity
Retirement Plans (i.e. IRA,401K)
Cash Valued Life Insurance
What are Pell Grants?
Student assistance grants of up to $4000.
What are Federal Supplemenary Educational Opportunity Grants (FSEOGs)?
Student assistance grants of up to $4000. Pell grant holders are favored.
What are Perkins Loans?
Student loans at 5% for upto $4000 / year up to $20,000 for undergraduate school.
$6000 / year for graduate school up to another $20,000.
Up to 10 years are allowed for repayment.
What are Stafford loans?
Student loans capped at 8.25 percent. They tend to vary below that ceiling. In 2006 they have a fixed rate of 6.8% These loans are attractive because the government pays students’ interest while they are students, and students don't begin making payments until 6 months after graduation. The loans also have a repayment period of up to 10 years. The Federal Direct and Stafford Loans are extremely popular and 60% of all undergraduates nationally receive them.
What is a "subsidized loan"?
A subsidized loan is one that charges no interest until repayment of the loan begins. (The government pays the interest.)
Independent graduate students or a dependent student whose parents are unable to get a Plus Loan can get a Stafford/Direct loan with what limits?
$7,500 for first-year student enrolled in a program of study that is at least a full academic year (only $3,500 of this amount may be in subsidized loans).
$8,500 for students who have completed the first year of study and the remainder of the program is at least a full academic year (only $4,500 of this amount may be in subsidized loans).
$10,500 a year for students who have completed two years of study and the remainder of the program is at least a full academic year (only $5,500 of this amount may be in subsidized loans).
$12,500 a year for graduate students.
What are PLUS loans?
PLUS Direct and PLUS Loans are education loans for a student's parents.

Federal Direct PLUS Loans have an interest rate of 7.9%. The interest rate could change each year of repayment, but, by law, it will never exceed 9 percent.
What are 529 Pre-Paid plans?
529 Pre-paid Tuition Plans allow individuals to lock in future tuition costs at today's rates by purchasing units redeemable at US colleges or universities. If the cost of college goes up, the pre-paid units are guaranteed to pay for tuition and fees for in-state public schools, and the units may be transferable to private colleges or out-of-state universities. The Independent 529 plan is available for more than 250 private colleges for future tuition discounts.
What are 529 Savings Plans?
529 Savings Plans allow parents or grandparents to contribute cash to an account to pay for a beneficiary's future higher education expenses. Contributors may select from the plan's investment options, usually mutual funds, to grow the account, but owners cannot control the plan's investments. Most states offer 529 savings plans, and you can choose other state plans without restrictions.
What are the major sources of financial aid for students?
Government grants and loans – are available at subsidized interest rates for students, based upon financial needs. The different government grants and loans available are:
Pell Grants
Supplemental Educational Opportunity Grants
Perkins Loans
Federal Direct/Stafford Loans
Plus Direct/Plus Loans
Work-Study Programs
Tuition Programs – are programs that let individuals purchase credits or make contributions to an account to pay for future education needs. A 529 Plan is an example of a commonly used Qualified State Tuition Plan (QTP).
What is a CESA?
After-tax contributions to a Coverdell Education Savings Accounts (CESA) are treated as non-taxable gifts to a beneficiary.

Contributions to a Coverdell Education Savings Account are nondeductible and limited to $2,000 annually.
Contributions must be in cash and made before the beneficiary reaches the age of 18.
The allowed contribution is phased out starting at $95k for single and $190k for joint returns.
Contributions can be made to both a 529 and a CESA for the same child.
What is a QTP?
A Qualified Tuition Plan is a 529 plan usually sponsored by a state that defers taxes on earnings until funds are withdrawn. Certain education related withdrawals avoid all taxes on earnings.