Sue and DanSue and Dan

Lydia McQueenLydia McQueen

Angela RodriguezAngela Rodriguez

Allison WalkerAllison Walker

Rental OptionRental Option The best rental option for The best rental option for

Sue and Dan would be an Sue and Dan would be an apartment. They are less apartment. They are less expensive than renting a expensive than renting a house, and many times house, and many times utilities will be paid by utilities will be paid by the managers or included the managers or included within the rental fee. within the rental fee. There is no yard There is no yard maintenance, which saves maintenance, which saves a lot of money, and if a lot of money, and if something breaks you call something breaks you call maintenance and they maintenance and they will usually fix it for free. will usually fix it for free.

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 and other shops, and are low-maintenance.

Single-Family ResidenceSingle-Family Residence This would offer much more This would offer much more

privacy: no common walls, less privacy: no common walls, less noise from neighbors. It usually noise from neighbors. It usually includes a yard, which could also includes a yard, which could also be used for an expansion later on be used for an expansion later on when they have money. Also when they have money. Also they would have homeowners they would have homeowners insurance. insurance.

A more expensive single-family A more expensive single-family residence would obviously be residence would obviously be more money. All the more money. All the maintenance is the homeowners maintenance is the homeowners responsibility, and they would responsibility, and they would have to pay homeowners have to pay homeowners insurance. insurance.

Apartments and other rental housing:

Pro vs. ConPros - 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)

Cooperatives an Condominiums:Pro vs. Con

Pros - Low maintenance, shared amenities, and affordable,

Cons - Hard time getting a mortgage because they may not want to use the stock as collateral, difficult to dell, homeowners fee, privacy, decoration, and style.

(Keown, Arthur 2013)

House:Pro vs. Con

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)

Picture(Culrure.mulching.files.wordpress.com, 2012)

This should as discussed include a discussion of This should as discussed include a discussion of

buying vs. renting for this family:buying vs. renting for this family: BuyingBuying Rent won't raise over timeRent won't raise over time It is possible for your property It is possible for your property

appreciateappreciate you can use a home equity loan as a you can use a home equity loan as a

source of cashsource of cash You can build your equity over timeYou can build your equity over time You have the option of being able to You have the option of being able to

redecorate, remodel, and landscape if redecorate, remodel, and landscape if you want toyou want to

There are tax advantages like There are tax advantages like including property taxes and interest including property taxes and interest in your deductionsin your deductions

(Keown, Arthur 2013)(Keown, Arthur 2013)

RentingRenting There is no property taxesThere is no property taxes There is no down paymentThere is no down payment There is no grounds keepingThere is no grounds keeping No risk of falling house pricesNo risk of falling house prices You don't have to pay for maintenance or You don't have to pay for maintenance or

home repairshome repairs The risk and losses of housing price The risk and losses of housing price

depreciation does not affect youdepreciation does not affect you You don't have to pay taxes, upkeep, You don't have to pay taxes, upkeep,

mortgage, or insurance just rentmortgage, or insurance just rent You don't have to pay selling costs if you You don't have to pay selling costs if you

want to relocatewant to relocate When you rent they usually have health When you rent they usually have health

clubs, tennis courts, and swimming pools on clubs, tennis courts, and swimming pools on the propertythe property

(Keown, Arthur 2013)(Keown, Arthur 2013)

Compare the monthly costs of the two Compare the monthly costs of the two potential home purchases:potential home purchases:

30 year monthly mortgage30 year monthly mortgage

• Home priceHome price $180,000$180,000

• Down PaymentDown Payment 5%5% • Interest RateInterest Rate 4.0%4.0%

• Principal & Interest portion of paymentPrincipal & Interest portion of payment $816 $816

• Private Mortgage InsurancePrivate Mortgage Insurance $114$114

• Taxes & Insurance, monthlyTaxes & Insurance, monthly 2.0% $3002.0% $300

• Total Monthly Payment $1230Total Monthly Payment $1230 (Bluejay, Michael, 2014(Bluejay, Michael, 2014))

15 year monthly mortgage15 year monthly mortgage

• Home price Home price $180,000$180,000

• Down PaymentDown Payment 5%5% • Interest Rate Interest Rate 4.0%4.0%

• Principal & Interest portion of payment $1265Principal & Interest portion of payment $1265

• Private Mortgage InsurancePrivate Mortgage Insurance $114$114

• Taxes & Insurance, monthlyTaxes & Insurance, monthly 2.0% $3002.0% $300

• Total Monthly PaymentTotal Monthly Payment $1679$1679 (Bluejay, Michael, 2014)(Bluejay, Michael, 2014)

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 income, it’s highly unlikely that the family could afford to purchase a new house with a 20% down payment. Consolidating their debt and refinancing is a much better option for them at this time.

(Keown, Arthur 2013)

Paying it offPaying it off

If they were to consolidate their debt, they would pay a total of $156,340 over 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 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 – 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!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 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 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 life of the loan as well as provide a lower overall mortgage payment of $868.55 per month. $868.55 per month. (Keown, Arthur 2013)(Keown, Arthur 2013)

Refinancing at a 15 year payoff would save $296.45 on the house payment 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 alone, add the $200 minimum credit card payments and $296 car

payment and the family would have an extra $792 in their pocket a payment and the family would have an extra $792 in their pocket a month! Currently, nearly ½ of Danmonth! Currently, nearly ½ of Dan’’s income goes towards paying just the s income goes towards paying just the mortgage but if they were to refinance, monthly payments would be just mortgage but if they were to refinance, monthly payments would be just under 1/3 of Danunder 1/3 of Dan’’s current immense since Sue recently lost her job and is s current immense since Sue recently lost her job and is

unable to work. and include the credit card and car debt!unable to work. and include the credit card and car debt!

Picture: (Bankrate 2014)Picture: (Bankrate 2014)The amount saved monthly would benefit the family immensely since Sue The amount saved monthly would benefit the family immensely since Sue

recently lost her job and is unable to work. (Keown, Arthur 2013) recently lost her job and is unable to work. (Keown, Arthur 2013)

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)

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.

(Keown, Arthur 2013)

Picture: (Banktrate 2014)Picture: (Banktrate 2014) According to their current credit card debt and interest rate, they would 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 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 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 they continue to pay only the minimum payments of $200, with one credit card interest rate at 24.8%, assuming the remaining three credit 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 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 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 take 18 years and 3 months for the credit cards to be paid. They would end up paying $11,494.39 in interest alone! end up paying $11,494.39 in interest alone! (Keown, Arthur 2013)(Keown, Arthur 2013)

(Bankrate 2014)(Bankrate 2014)

Picture: (Banrate 2014)Picture: (Banrate 2014)When considering refinancing the home, Sue and Dan have several options. They 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 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 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 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 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 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 they currently pay towards credit card debt, car and house payment each month. month.

(Keown, Arthur 2013)(Keown, Arthur 2013)

Picture: (Bankrate 2014)Picture: (Bankrate 2014) Sue and Dan also need to consider the amount to refinance – need vs. want. 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 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 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 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 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 loan minus (-) total interest paid for $92,000 loan minus (-) interest charge for credit cards). Although the overall interest charge would be higher 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 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 paid could be used as a tax deduction and less money would be spent on a monthly basis. monthly basis. (Keown, Arthur 2013)(Keown, Arthur 2013)

With the loss of SueWith the loss of Sue’’s income and the added cost of monthly s income and the added cost of monthly medication it would be wiser to consolidate the car and credit medication it would be wiser to consolidate the car and credit cards with the home refinance and save on overall monthly cards with the home refinance and save on overall monthly

cost during their hardship. cost during their hardship. Picture: (Bankrate 2014)Picture: (Bankrate 2014)

Also, Sue and Dan should consider Principle 7 (Protect Also, Sue and Dan should consider Principle 7 (Protect yourself against major catastrophes) and create a will yourself against major catastrophes) and create a will in order to protect their assets and children in case in order to protect their assets and children in case either of them were to die. either of them were to die. (Keown, Arthur 2013)(Keown, Arthur 2013)

ReferencesReferences

Bankrate. "Will You save by Refinancing Your Mortgage?" Refinance. Bankrate. "Will You save by Refinancing Your Mortgage?" Refinance. (2014) Web. 02 Apr. 2014.(2014) Web. 02 Apr. 2014.http://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

Bluejay, Michael. Bluejay, Michael. ““How to buy a houseHow to buy a house”” Figuring the monthly payment Figuring the monthly payment in a mortgage (2014) Thur. 04 Apr. 2014 in a mortgage (2014) Thur. 04 Apr. 2014 http://http://michaelbluejay.com/house/figurepayment.htmmichaelbluejay.com/house/figurepayment.htm

Keown, Arthur. Keown, Arthur. ““Personal Finance Turning Money into Personal Finance Turning Money into Wealth." Wealth." Finance Finance (2013): 232-286. (2013): 232-286. Managing your MoneyManaging your Money. Thur. 04 Apr. . Thur. 04 Apr. 2014. 2014.