Chapter 5 – Making Automobile and
Housing Decisions
COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
5 - 1
Chapter 5 - Learning Goals
LG 1 - Implement a plan to research and select a new or
used automobile.
LG 2 - Decide whether to buy or lease a car.
LG 3 - Identify housing alternatives, assess the rental option,
and perform rent-or-buy analysis.
LG 4 - Evaluate the benefits and costs of home ownership
and estimate how much you can afford for a home.
LG 5 - Describe the home-buying process.
LG 6 - Choose mortgage financing that meets your needs.
Learning
Goals
5 - 2
Chapter 5 - Making Automobile and Housing Decisions
Internet Links and On-Line Resources
•
•
•
•
•
•
•
•
•
•
•
Web Links
•
•
•
10 steps to buying a car
General Motors Online
Canoe Money Car Loan Rates
AutoTrader online
Insurance Bureau of Canada on auto insurance
Black book price for cars according to Canadian Driver
Leasing versus buying for the same car
Housing prices in Canada – Canadian Real Estate Association
Mortgage Qualifier calculator at Dinkytown Web
Canada Mortgage and Housing Corporation (CMHC) guide to
buying, renting and financing.
What renovations will add the greatest value to your home –
Reader’s Digest
Multiple Listing Service
10 things not to do before closing – realestate.com
Mortgage loan insurance from Genworth Financial Canada
(formerly GE Mortgage Insurance Canada)
5 - 3
Chapter 5 - Making Automobile and Housing Decisions
Key Chapter Terms















Terms


Depreciation
Sales contract
Lease
Closed-end lease
Open-end lease
Residual value
Capitalized cost
Purchase option
Condominium
Cooperative Apartment
Rental contract
Down payment
Loan-to-value ratio
Mortgage loan insurance
Closing costs
Gross debt service ratio
Total debt service ratio















Property taxes
Multiple Listing Service
Prequalification
Offer to purchase
Agreement of purchase
and sale
Good faith deposit
Contingency clause
Title check
Mortgage loan
Mortgage broker
Fixed-rate mortgage
Variable-rate mortgage
Interest-rate cap
Convertible mortgage
Conventional mortgage
Chapter 5 - Making Automobile and Housing Decisions
5 - 4
Definitions
Depreciation

The loss in the value of an asset such as an
automobile that occurs over its period of
ownership; calculated as the difference between
the price initially paid and the subsequent sale
price.
Terms
5 - 5
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Sales Contract

An agreement to
purchase an automobile
that states the offering
price and all conditions
of the offer; when signed
by the buyer and the
seller, the contract legally
binds them to its terms.
Terms
5 - 6
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Lease

An arrangement in which the lessee receives the
use of the car (or other asset) in exchange for
making monthly lease payments over a specified
period.
Terms
5 - 7
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Closed-end Lease

The most popular form of automobile lease, often
called a ‘walk-away’ lease because at the end of
its term the lessee simply turns in the car,
assuming the preset mileage limit has not been
exceeded and the car hasn’t been abused.
Terms
5 - 8
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Open-end Lease

An automobile lease under which the estimated
residual value of the car is used to determine lease
payments, if the car is actually worth less than this
value at the end of the lease, the lessee must pay
the difference.
Terms
5 - 9
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Residual Value

The remaining value of a leased car at the end of
the lease term.
Terms
5 - 10
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Capitalized Cost

The price of a car that is being leased.
Terms
5 - 11
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Purchase Option

A price specified in a lease at which the lessee can
buy the car at the end of the lease term.
Terms
5 - 12
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Condominium (condo)

A form of direct ownership of an individual unit in
a multiunit project in which lobbies, swimming
pools, and other common areas and facilities are
jointly owned by all property owners in the
project.
Terms
5 - 13
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Cooperative Apartment (co-op)
•
An apartment in a building in which each
tenant owns a share of the corporation that
owns the building.
Terms
5 - 14
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Rental Contract (lease agreement)
•
A legal instrument that protects both the lessor
and the lessee from an adverse action by the
other party; it specifies the amount of the
monthly payment, the due date, penalties for late
payment, the length of the lease agreement,
deposit requirements, fair wear and tear
definitions and provisions, the distribution of
expenses, renewal options and early termination
penalties, and any restrictions on children, pets,
subleasing or using the facilities.
Terms
5 - 15
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Down Payment
•
A portion of the full purchase price provided by
the purchaser when a house or other major asset
is purchased; often called equity.
Terms
5 - 16
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Loan-to-value Ratio
•
The maximum percentage of the value of a
property that the lender is willing to loan.
Terms
5 - 17
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Mortgage Loan Insurance
•
An insurance policy that protects the mortgage
lender from loss in the event the borrower
defaults on the loan: It is required by federallyregulated lenders when the down payment is less
than 25 percent of the purchase price of the
home. Its intent is to encourage loans to homebuyers who have very little money available for a
down payment and closing costs.
Terms
5 - 18
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Closing costs
•
All expenses that borrowers ordinarily pay at the
time a mortgage loan is closed and title to the
purchased property is conveyed to them.
Terms
5 - 19
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Gross debt service (GDS) ratio
•
The ratio of the borrower’s monthly housing
costs (mortgage payments, heating costs, and
taxes) to their monthly gross income.
Terms
5 - 20
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Total debt service (TDS) ratio
•
The ratio of the borrower’s total debt service
costs (housing costs plus other debt service) to
their monthly gross income.
Terms
5 - 21
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Property taxes
•
Taxes levied by local governments on the
assessed value of the real estate.
Terms
5 - 22
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Homeowner’s insurance
•
Insurance sometimes required by mortgage
lenders to cover the replacement value of a
home and its contents.
Terms
5 - 23
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Multiple Listing Service
•
A comprehensive listing, updated daily, of
properties for sale in a given community or
metropolitan area that includes a brief
description of each property and its asking price
with a photo.
Terms
5 - 24
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Prequalification
•
The process of arranging with a mortgage lender,
in advance of buying a home, to obtain the
amount of mortgage financing the lender deems
affordable to the home buyer.
Terms
5 - 25
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Offer to purchase
•
A written contract setting out the terms under
which the buyer agrees to buy the home. If the
Offer to Purchase is accepted by the seller, it
becomes the agreement of purchase and sale.
Terms
5 - 26
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Agreement of purchase and sale
•
The document that sets out the terms and
conditions agreed to between the buyer and the
seller of a property.
Terms
5 - 27
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Good faith deposit
•
Money pledged by a buyer to show good faith
when making an offer to buy a home.
Terms
5 - 28
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Contingency clause
•
A clause in a real estate sales contract that
makes the agreement conditional on such factors
as the availability of financing, property
inspections, or obtaining expert advice.
Terms
5 - 29
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Title check
•
The research of legal documents and courthouse
records to verify that the seller conveying title
actually has the legal interest he or she claims,
and that the title is free of all liens and
encumberances.
Terms
5 - 30
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Mortgage loan
•
A loan secured by the property: In the event of
default by the borrower, the lender has the legal
right to liquidate the property to recover the
funds it is owed.
Terms
5 - 31
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Mortgage broker
•
A firm that solicits borrowers, originates primarily
conventional loans, and places them with
mortgage lenders; the broker merely takes loan
applications and then finds lenders willing to
grant the mortgage loans under the desired
terms.
Terms
5 - 32
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Fixed-rate mortgage
•
The traditional type of mortgage in which both
the rate of interest and the monthly mortgage
payment are fixed over the term of the loan.
Terms
5 - 33
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Variable-rate mortgage
•
A mortgage on which the rate of interest is
adjusted in accordance with market interest rate
movements.
Terms
5 - 34
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Interest-rate cap
•
On a variable-rate mortgage, the limit on the rate
of interest that can be charged during the term
of the loan.
Terms
5 - 35
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Convertible mortgage
•
A variable-rate mortgage loan that allows
borrowers to convert from a variable-rate to a
fixed-rate loan.
Terms
5 - 36
Chapter 5 - Making Automobile and Housing Decisions
Definitions
Conventional mortgage
•
A mortgage offered by a lender who assumes all
the risk of loss; typically requires a down
payment of at least 25 percent of the value of
the mortgaged property.
Terms
5 - 37
Chapter 5 - Making Automobile and Housing Decisions
THE END!
5 - 38