Calculating Income and Expenses

This video is the third installment of a midterm review, covering various financial concepts such as front-end and back-end ratios, loan eligibility, purchase price calculations, interest on loans, and mortgage payment calculations. It also delves into investment strategies and retirement planning, providing a comprehensive overview of financial decision-making processes. The video concludes with a comparison of loan costs and a summary of key points discussed.

What is the front-end ratio used to determine?

• The interest rate on a loan

• The percentage of income spent on housing expenses

• The total amount of a loan

• The total cost of a house

What is the maximum acceptable back-end ratio for loan approval?

• 19%

• 36%

• 55%

• 28%

How do you calculate the closing cost of a house?

• Subtract the down payment from the purchase price

• Multiply the purchase price by the interest rate

• Multiply the purchase price by the closing cost percentage

• Add the down payment to the purchase price

What is the formula to determine the down payment on a house?

• Purchase price minus loan amount

• Purchase price times down payment percentage

• Loan amount divided by interest rate

• Loan amount times down payment percentage

How is the total interest paid on a mortgage calculated?

• Subtract the house price from the total amount paid over the loan term

• Multiply the monthly payment by the number of months

• Add the down payment to the total loan amount

• Divide the total loan amount by the interest rate

What is the first step in calculating a monthly mortgage payment?

• Determine the loan term

• Calculate the total loan amount

• Calculate the numerator of the payment formula

• Determine the interest rate

What should be done to ensure all housing expenses are calculated monthly?

• Add all annual expenses together

• Subtract monthly expenses from annual expenses

• Divide annual expenses by 12

• Multiply monthly expenses by 12

Which brother paid more in interest, John or Tom?

• John

• Tom

• Both paid the same

• Neither paid interest

How do you calculate the total amount spent on a house including interest?

• Subtract the down payment from the total loan amount

• Add the down payment to the total loan amount

• Multiply the monthly payment by the number of months and add the down payment

• Divide the total loan amount by the interest rate

What is the purpose of gap insurance in a car loan?

• To cover the cost of repairs

• To pay the difference between the car's value and the loan balance

• To reduce the interest rate

• To extend the loan term