Assignment
1) In 2006, Colette A. Day needed to replace the roof on her house. At the time, her home was worth $300,000 and her mortgage was $225,000. Her home equity was . Her credit union offered her a home equity line of credit (HELOC) loan and allowed her to borrow up to 80% of the fair market value of her home. $300,000 * 80% = but she still owed . Therefore, she was eligible for a HELOC of . (80% of her home's fair market value minus the existing mortgage). Thanks to the help from her credit union, she was able to pay fix her roof.
2) In 2005, Charlatans'R'Us was offering Colette a 125% HELOC. The nice man told her that she could borrow up to 125% of her current home value of $300,000. This is equal to . (125% * $300,000) Since she still owed $225,000, she would have been eligible for a HELOC! (If she had borrowed more than half of her HELOC, she would have owed more than her house was worth. Colette politely turned down the offer. Since the housing bubble burst, these loans are no longer available and the nice man with the greasy hair is now hawking debt consolidation loans. By the way, Colette's house now has a fair market value of only $230,000 and she is "underwater" on her mortgage and HELOC but not as much as if she had fallen for this scam and borrowed a ton of money. She can make her payments.)
3) Etienne Wheeler borrowed $5,000 for 9 months at 11% annual simple interest. How much interest did Etienne pay? Simple interest = Principal * Interest Rate * Time in years (Hint: How many months are in a year?)
4) Suzanne Sox paid $100 interest on a $1,200 loan after 1 year. The loan came with a service charge of $10. What was the total finance charge on the loan? What was the annual percentage rate (APR)? (Hint: Same formula as question #3.)
5) Evan Elpus took a $400 cash advance from his credit card to make a purchase. His credit union charges a 2% cash advance fee and charges interest from the date of the cash advance on the full amount including the cash advance fee. His interest rate is 19%. What was the cash advance fee? What was the interest for one month? (Careful!) What was the total amount of the bill? What would Evan have paid in fees and interest if he had simply paid cash for the purchase?
6) Nira Nuff pays $300 in income taxes and $200 in Social Security / Medicare contributions. Her gross monthly salary is $2,800. She contributes $50 per month to a Roth IRA. She pays $250 for a car loan, $80 for a student loan, and $100 to her credit card. What is Nira's debt payments-to-income ratio? Is she above the recommended ratio? (See slide 31)
7) Doug M. Upp records the following assets: (Auto $12,000), (Furniture $2,500), (Misc $4,400), (Cash $2,000). He has the following debts: (Auto loan $13,000), (Student loan $5,000), (Credit card debt $6,000). What is Doug's debt-to- equity ratio? Is he above the recommended ratio? Do you have any recommendations for Doug? (See slide 33)
8) You can use Sheet 15 from Your Personal Financial Plan or use the example on page 149 or slide 31 to create your Debt Payments-to-Income Ratio. Consult your cash flow statement for the numeric information. Attach a separate sheet.