Transcript Law for Business

Stock Market Analysis and
Personal Finance
Mr. Bernstein
Housing Finance,
pp 198-227
April 17-20, 2015
Stock Market Analysis
& Personal Finance
Mr. Bernstein
Housing and Lifestyle
Features
Living space desired
Acreage
Commuting
Budget
Life Phase
Renting vs. buying
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Housing and Lifestyle
Advantages
Renting an Apartment Easy to move
Low maintenance
Low financial commitment
Renting a House
Easy to move
Low maintenance
Low financial commitment
Owning a House
Pride of ownership
More space
Tax benefits
Owning a
Pride of ownership
Condominium
Lower maintenance
Tax benefits
Access to recreation and business
Owning a Mobile Home Less expensive than house
Disadvantages
No tax advantage
Limitations on activities
Less privacy
Higher utilities expenses
Some limits on activities
No tax advantage
Financial commitment/risk
High living expenses
Limited mobility
Financial commitment/risk
Less privacy than a house
Need to get along with others
Less space than a house
Lower quality than house
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Renting
+ Mobility
+ Fewer Responsibilities
+ Low upfront costs
- Lifestyle restrictions
Rental Agreements and Leases
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Tenant’s Rights and Duties
Right of Possession
Landlords generally do not have right to enter and inspect
unless stated in lease
Right to Use Property
Right to Assign or Sublet
Tenant remains responsible toward landlord
Duty to pay rent in timely fashion
Duty to take reasonable care of property (record condition
before moving in)
Duty to notify landlord of needed repairs
Tort liability to guests (purchase renter’s insurance)
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Landlord’s Rights and Duties
Right to receive rent in timely fashion
Rent due even if tenant vacates early
Right to regain possession at end of lease
Duty to maintain common grounds of multi-unit
building
Duty to maintain housing code
Duty to pay property taxes
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Types of Housing
Single-Family - Unattached
Multi-Family – Duplexes, Townhouse, 4-flats, etc.
Condominiums – similar to apartments but owned, not
rented
Coops – Apartment building owned by residents
Mobile Homes – Inexpensive, popular in some climates
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Mortgage Financing
Long-term collateralized loan
Most common lengths are 15 and 30 years
Failure to make payments can result in foreclosure, or
taking possession of property by lender
Amortization is the amount of principal paid each
month; small at first and increases over time.
Why?
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Mortgage Financing
Interest Rates, Points and APR (Annual Percentage Rate)
$100,000 loan with 1 point and 5% interest rate
Amount borrowed is $99,000; APR is 5.09%
$100,000 loan with 4 points and 4.5% interest rate
Amount borrowed is $96,000; APR is 4.85%
Which is the better deal?...
Over 30 years, the latter deal has lower APR…but…
If you move in 5 years, the points are spread over fewer
years and the APRs are 5.41% and 6.12%!!
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Mortgage Financing
Closing costs other than Points and misc. lender fees*
Title Search Fee ($300)
Title Insurance ($1400)
Attorney’s Fee ($500)
Property Survey ($700)
Appraisal Fee ($400)
Termite or other Inspection Fees ($100)
Real Estate Agent Commission (paid by seller; 3-6%)
* - Average 2012 New Jersey costs from:
http://www.bankrate.com/finance/mortgages/2012-closing-costs/new-jersey-closing-costs.aspx
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Mortgage Financing
ARMs: Adjustable Rate Mortgages
Typical terms: low rate for 1, 2 or 5 years, then an
adjustment to a spread over a common floating rate
Example: 2% for 5 years, then LIBOR + 2.5%
Rate may be capped
Discounted rate in early years is paid for by accepting risk of
rising rates in later years
Interesting if you plan to move within a few years…but if
not, beware…the adjustment can be dramatic
ARMs caused many bankruptcies in 2008 crisis
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Mortgage Financing
Important Terms
Equity: Value of home minus amount still owed
Home Equity Loan: “Second Mortgage”
Refinancing: New mortgage, pays off old mortgage,
often establishes a lower or fixed rate
Escrow Account: Many mortgage lenders will
require Property Tax money be paid into a trust
account with house payments
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