What You’ll Learn

Section 10-1 Compute the mortgage loan amount.

Section 10-2 Determine the monthly payment,
total amount paid, and total interest
charged.
Section 10-3 Figure out the total closing costs.
Section 10-4 Compute the allocation of monthly
payment toward principal, interest,
and the new principal.
Section 10-5 Calculate the assessed value and real
estate taxes.
Section 10-6 Work out the amount of coverage.
Section 10-7 Calculate the annual homeowners
insurance premium.
Section 10-8 Compute the total housing cost and
compare it with suggested guidelines.
When Will You Ever Use This?
At some point in your life you might want to
buy a house and make it your home. In doing so
you’ll need to take into consideration all the
costs involved in buying a house.

Key Words to Know

• mortgage • tax rate • medical
loan • market value coverage
• interest • rate of • replacement
• closing assessment value
costs • homeowners • premium To learn more about
• principal insurance • fire buying a house, visit
• real estate • loss-of-use protection
taxes coverage class busmath.glencoe.com.
• assessed • personal • utility
value liability costs

342 䊴 Chapter 10 Housing Costs

The Hunt to Find a Home

Sometimes finding the right house at the

right price in the right location is nothing
short of a miracle. In this chapter you’ll
follow a family searching for a home.
Read on. Go to . . .
Looking at Life 15 or 30
Years from Now . . . . . . . . . . . .p. 344

Curb Appeal . . . . . . . . . . . . . . . .p. 346

That Will Cost You . . . . . . . . . . . .p. 349

How Much Can You

Afford a Month? . . . . . . . . . . . .p. 351

You Have Other

Costs to Consider . . . . . . . . . . .p. 355

Protect Yourself . . . . . . . . . . . . . .p. 357

The Insurer Ensures

You Coverage . . . . . . . . . . . . . .p. 359

What Else Do You

Have to Pay For? . . . . . . . . . . .p. 361

Analyze the Story . . . . . . . . . . . . .p. 365

343
 Mortgage Loans
When you purchase a home, first you’ll make a down payment. Generally, the
down payment is between 10 percent and 40 percent of the selling price, although
Compute the many first-time homeowners put down 5 percent.
mortgage loan You finance the remaining portion of the selling price with a mortgage loan
amount. from a lender, such as a bank, savings and loan association, credit union, or
mortgage company. The mortgage gives the lender the right to seize and sell the
property if you fail to make the payments. The mortgage loan is usually repaid
with interest in equal monthly payments. Remember that:
Mortgage Loan Amount ⴝ Selling Price ⴚ Down Payment

The Hunt to Find a Home

Looking at Life 15 or 30 Years from Now Shereen and Torian

Sultan are driving through the various neighborhoods in their
Texas town to look at houses. They have two children and want
to buy a house in a safe neighborhood close to a school.
Draw Conclusions Why do you think a majority of home-
owners take out 15- to 30-year mortgages as opposed to a 5-year
mortgage?
Continued on page 346

Example 1
Jessica and Kirk Cramer consider purchasing a new home for $140,000. A
Workshop 14: 15 percent down payment is required. What is the amount of the mortgage
Finding a loan needed to finance the purchase?
Percentage, page 30 STEP 1: Find the down payment.
Skill 30: Finding $140,000
15%  $21,000
the Percentage, STEP 2: Find the mortgage loan amount.
page 757 Selling Price ⴚ Down Payment
Skill 4: Subtracting $140,000  $21,000  $119,000 mortgage loan amount
Whole Numbers,
page 731
Skill 6: Subtracting
Decimals, page 733 140000 15 21000 140000 21000 119000

344 䊴 Chapter 10 Housing Costs

 CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter.
Find the down payment and the amount of the mortgage.
1. It has a $80,000 selling price. 2. It has a $200,000 selling price.
You put down 25 percent. You put down 30 percent.

SECTION 10-1 PRACTICE

Selling Portion of Amount of Mortgage

Buyer
Price Down Payment Down Payment Loan Amount

3. Sumika Ganet $ 87,000 20% $17,400 a.

4. Carla Gonzalez 62,500 25% a. b.

5. Albert Nash 298,800 –14 a. b.

6. Dario Valencia 156,000 –25 a. b.

7. David and Peggy Chin. 8. Alvira and Berry Fukunaga.

Modular home is priced at Home is priced at $280,000.
$77,400. They made a 20 percent They put down 25.
down payment. What is the What is the mortgage loan amount?
mortgage loan amount?
9. Rita and Alfred Johnson offered $85,000 for a home that had been priced at
$90,000. The Johnsons and the seller agreed on a selling price of $86,500. What
is the amount of the mortgage loan if they make a 20 percent down payment?
10. Richard Darman offered $112,500 for a home that had been priced at
$125,000. The seller agreed to the offer. A bank is willing to finance the
purchase if he can make a down payment of 14 of the selling price. What is
the amount of his mortgage loan?
11. The Hasbros have purchased a duplex. They would use the rental income
from one part of the duplex to help meet the mortgage payments. A selling
price of $100,800 was agreed upon. What is the amount of the mortgage
loan if a down payment of 30 percent is required?
12. Dan and Sue Willingham have saved $14,000 for a down payment on their
future home. Their bank has informed them that the minimum down payment
required to obtain a mortgage loan is 20 percent. What is the most that they can
spend for a home and expect to receive bank approval for their loan?

MAINTAINING YOUR SKILLS

Find the percentage.

Skill 30: Finding 1
13. 15% of 40,000 14. 4 of 84,000 15. 20% of 90,000
the Percentage,
page 757 Subtract.
Skill 4: Subtracting
16. 40,000  8,400 17. 94,000  18,000 18. 180,000  36,000
Whole Numbers,
page 731

S e c t i o n 1 0 - 1 Mo r t g a g e Lo a n s 䊳 345
 Monthly Payment and
Total Interest
Determine the Lenders that make mortgage loans charge interest . This is the amount of money
monthly payment, paid for the use of the lender’s money. The interest rate will vary from lender
total amount paid, to lender, so it pays to shop around. If you know the annual interest rate, the
and total interest amount of the loan, and the length of the loan, you can use a table to find the
charged. monthly payment, total amount paid, and total interest charged. It looks like this:

Figure 10.1 Monthly Payment for a $1,000 Loan*

Interest Length of Loan in Years

Rate 20 25 30
5.00% $6.60 $5.85 $5.37
5.50% 6.88 6.14 5.68
6.00% 7.16 6.44 6.00
6.50% 7.46 6.75 6.32
7.00% 7.75 7.07 6.65
7.50% 8.06 7.39 6.99
8.00% 8.36 7.72 7.34
8.50% 8.68 8.05 7.69
*An expanded form can be found in the Appendix on page 799.

Monthly Amount of Mortgage Monthly Payment

Payment ⴝ $1,000 ⴛ for $1,000 Loan
Amount Paid ⴝ Monthly Payment ⴛ Number of Payments
Total Interest Charged ⴝ Amount Paid ⴚ Amount of Mortgage

The Hunt to Find a Home

Curb Appeal Torian slows down their car, and he and Shereen
look at a small stone house with shutters and a flower garden.
They are so excited, neither of them notices the front porch is
sagging and the roof needs replacing.
“I’m just hoping interest rates will go down soon,” Shereen
says, “so we won’t have to pay so much each month.”
Draw Conclusions Can you shop around for mortgage rates or
are they all the same no matter where you go?
Continued on page 349

346 䊴 Chapter 10 Housing Costs

 Example 1
Carol and Adam Burke have applied for an $80,000.00 mortgage loan at an
Workshop 6: annual interest rate of 8.00 percent. The loan is for a period of 30 years and
Multiplying will be paid in equal monthly payments that include interest. What is the total
Decimals, page 14 amount of interest charged?
Workshop 5: STEP 1: Find the monthly payment. (Refer to the Monthly Payment for a
Subtracting $1,000 Loan table on page 799.)
Decimals, page 12 Amount of Mortgage Monthly Payment
Skill 8: Multiplying $1,000 ⴛ for $1,000 Loan
Decimals, page 735
$80,000.00
$7.34
Skill 6: Subtracting $1000.00
Decimals, page 733
 $587.20
STEP 2: Find the amount paid.
Monthly Payment ⴛ Number of Payments
$587.20
(12 months
30 years)
$587.20
360
 $211,392.00
STEP 3: Find the total interest charged.
Amount Paid ⴚ Amount of Mortgage
$211,392.00  $80,000.00  $131,392.00 total interest

80000 1000 7.34 587.2 12 30

211392 80000 131392

CONCEPT CHECK

Complete the problem, then check your answers at the end of the chapter. Use
the Monthly Payment for a $1,000 Loan table on page 799.
1. Find the monthly payment, amount paid, and interest charged for a $90,000
mortgage loan at an annual interest rate of 5 percent for 20 years.

SECTION 10-2 PRACTICE

Use the Monthly Payment for a $1,000 Loan table on page 799 to solve.

Amount Total
Mortgage Years Rate Payment
Paid Interest

2. $ 50,000 20 7.00% a. b. c.
3. 70,000 25 8.00% a. b. c.
4. 95,000 30 6.00% a. b. c.
5. 225,000 15 8.00% a. b. c.
6. 395,000 30 5.50% a. b. c.

Continued on next page

S e c t i o n 1 0 - 2 Monthly Pay me nt and Total Interest 䊳 347

 7. Charles and Sandy Compton.
Mortgage: $80,000.
Terms: 6.5 percent for 25 years.
Today the a. What is the monthly payment?
Department of b. What is the total amount paid?
Housing and Urban c. What is the total interest charged?
Development is the
federal agency 8. Abigail and Karlis Krisjanis.
charged with the Mortgage: $70,000.
mission of securing Terms: 7 percent for 20 years.
“a decent, safe,
a. What is the monthly payment?
and sanitary home
and suitable living b. What is the total amount paid?
environment for c. What is the total interest charged?
every American.”
9. Julie Hardy.
Selling price: $150,000.
Down payment: 10 percent.
Terms: 5.5 percent for 20 years.
What is the total interest charged?

10. Diane Novak.

Selling price: $250,000.
Down payment: 25 percent.
Terms: 7 percent for 30 years.
What is the total interest charged?

11. Ivan and Vicki Egan have obtained a $60,000 mortgage loan at an annual
interest rate of 7.5 percent for 15 years. What is the monthly payment? What
is the total amount to be paid?

12. Salma and Coron Broomall have reached an agreed-upon selling price of
$197,000. They plan to make a 30 percent down payment and finance the rest
at 6 percent for 15 years. What is the monthly payment? What is the total
amount to be paid?

13. Ellen and Clyde Perez reached an agreed-upon price of $124,000 for the
purchase of a house. They made a down payment of $14,000 and could
finance the remaining amount in one of two ways: at 5.5 percent for
25 years or at 6 percent for 20 years. Which mortgage results in a larger
amount of interest paid? How much greater?

MAINTAINING YOUR SKILLS

Multiply.
Skill 8: Multiplying
14. 24
120.50 15. 36
431.2 16. 12
832.40
Decimals, page 735
Skill 6: Subtracting Subtract.
Decimals, page 733
17. 75,500  22,200 18. 92,461  12,420 19. 453,821.50  100,000

348 䊴 Chapter 10 Housing Costs

 Closing Costs
At the time you sign the documents transferring ownership of the home to you,
the lender charges closing costs . Closing costs may include fees for lawyers,
Figure out the credit checks and title searches, surveys, taxes, and the preparation of the
total closing costs. documents. Some lenders charge a flat fee regardless of the amount of the loan.
Some lenders charge a percent of the amount of the loan. Other lenders charge
itemized fees at the closing. Remember that:
Closing Costs ⴝ Sum of Bank Fees

The Hunt to Find a Home

That Will Cost You The Sultans decide to make an offer on the
house. The young couple is at the bank to discuss the cost of
borrowing money for a mortgage. Bud Ayala, one of the mortgage
officers at their Texas bank, talks about how much of a down
payment they should put toward the house and how different
down payments will change what they borrow, and therefore affect
their monthly payments. Then he mentions additional costs.
Draw Conclusions Why might the lender charge additional
costs (over and above the loan documents)?
Continued on page 351

Example 1
Trudy and Germane Hallett have been granted a mortgage loan at an annual
Skill 3: Adding interest rate of 8 percent for 25 years by State Bank. The home has a selling
Whole Numbers, price of $95,500. They need a 15 percent down payment. State Bank will allow
page 730 them to finance the closing costs as part of the mortgage.
What are the total closing costs? What is the actual amount financed with
the mortgage?
STEP 1: Find the down payment. Closing Costs
$95,500
15%  $14,325
Credit report $ 65.00
STEP 2: Find the amount of
Loan origination 2% of mortgage
the mortgage. Abstract of title 120.00
$95,500  $14,325
Attorney fee 250.00
 $81,175
Documentation stamp 0.3% of mortgage
STEP 3: Find the closing costs. Processing fee 1.10% of mortgage
(See the Closing Costs Total Closing Costs $3,194.96
table.)
STEP 4: Find the actual amount financed.
Amount of Mortgage ⴙ Closing Costs
$81,175  $3,194.96  $84,369.96 financed

S e c t i o n 1 0 - 3 Closing Costs 䊳 349

 CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.
1. Kyung Ja and Hideo Hakola have been granted a mortgage loan at an
annual interest rate of 7.5 percent for 15 years by USA Mortgage. The
home has a selling price of $105,000. They need a 10 percent down payment.
USA Mortgage will allow them to finance the closing costs as part of the
mortgage. Use the table on page 349 to find the total closing costs. What is
the actual amount financed with the mortgage?

SECTION 10-3 PRACTICE

Use the Closing Costs table on page 349 to solve.

2. Jeremy Roberts. 3. Vincent and Sue Hemsley.
Mortgage loan of $50,000. Mortgage loan of $95,000.
What are the total closing costs? What are the total closing costs?
4. Ralph and Cristi Sheen. 5. Jack and Dina King.
Mortgage loan of $271,000. Mortgage loan of $420,000.
a. What are the total closing costs? a. What are the total closing costs?
b. What is the total amount of the b. What is the total amount of the
mortgage if the closing costs are mortgage if the closing costs are
financed? financed?
6. Lateefah and Eric Lewis have been granted a mortgage loan at an annual
interest rate of 5.5 percent for 15 years. The home has a selling price of
$175,000, and they need a 20 percent down payment. The bank will allow
them to finance the closing costs as part of the mortgage. The total closing
costs are 3.5 percent of the mortgage. What is the total of the closing costs?
What is the actual amount financed with the mortgage?
7. Barry and Ella Ellerbee have agreed to purchase a house for $96,500. Universal
Savings and Loan Association is willing to lend the money at 6 percent for
25 years, provided they can make a $10,000 down payment. The total closing costs
are 3.25 percent of the amount of the mortgage loan. What is the total of the
closing costs? What is the total of the mortgage if they finance the closing costs?
8. Rene and Jefferson Franklin are interested in purchasing a $60,000 home.
They plan to make a 20 percent down payment and finance the remaining
amount through Peabody Savings Association. Peabody Savings has these
closing costs: credit report, $80; appraisal report, $255; title insurance,
$190; survey and photographs, $325; recording fee, $65; legal fees, $280;
and property taxes, $789. If the loan is approved, how much cash will the
Franklins need to secure the loan, including the down payment?

MAINTAINING YOUR SKILLS

Find the percentage.

Skill 30: Finding 9. 15% of 9,000 10. 4% of 86,000 11. 7% of 252,000
the Percentage,
page 757 12. 2.4% of 78,000 13. 3.3% of 83,000 14. 1.2% of 30,000
15. 0.3% of 92,000 16. 0.15% of 85,100 17. 0.04% of 22,300

350 䊴 Chapter 10 Housing Costs

 The Monthly Payment
Most mortgage loans are repaid in equal monthly payments. Each payment
includes an amount for payment of interest and an amount for payment of the
Compute the principal of the loan, or the amount borrowed to finance the mortgage. The
allocation of amount of interest is calculated using the simple interest formula:
monthly payment Interest ⴝ Principal ⴛ Rate ⴛ Time
toward principal,
interest, and the The amount of principal that you owe decreases with each payment that you
new principal. make. The chart shows the interest and principal paid in the first 4 months of an
$80,000 mortgage loan. (See Figure 10.2.)

Figure 10.2 $80,000 Mortgage Loan at 8% for 30 Years

Payment Monthly Amount for Amount for Balance

Number Payment Interest Principal $80,000.00
1 $587.20 $533.33 $53.87 $79,946.13
2 587.20 532.97 54.23 79,891.90
3 587.20 532.61 54.59 79,837.31
4 587.20 532.25 54.95 79,782.36

Ask yourself these questions in order to solve the answers:

Important What Formulas

Questions Do I Use?
How do I find
Interest  Principal
Rate
Time
simple interest?
How do I figure out the
payment to principal Payment to Principal  Monthly Payment  Interest
amount?
How do I figure out the
new principal? New Principal  Previous Balance  Payment to Principal

The Hunt to Find a Home

How Much Can You Afford a Month? The Sultans and Ayala
also discuss monthly payments. Monthly payments include
interest and a portion of the principal. However, Ayala explains
that since the amount of principal decreases after each monthly
payment, the proportion of principal-to-interest also changes
each month.
Draw Conclusions Why would most people be interested in the
proportion of principal-to-interest for their monthly payments?
Continued on page 355

S e c t i o n 1 0 - 4 The Monthly Pay me nt 䊳 351

 Example 1
Rod and Carey Finn obtained a 30-year, $80,000.00 mortgage loan from State
Workshop 5: Bank and Trust. The interest rate is 8 percent. Their monthly payment is
Subtracting $587.20. For the first payment, what is the interest? What is the payment to
Decimals, page 12 principal? What is the new principal?
Workshop 6: STEP 1: Find the interest.
Multiplying Principal ⴛ Rate ⴛ Time
1
Decimals, page 14 $80,000.00
8%
12
Skill 6: Subtracting  $533.33 interest
Decimals, page 733 STEP 2: Find the payment to principal.
Skill 8: Multiplying Monthly Payment ⴚ Interest
Decimals, page 735 $587.20  $533.33
 $53.87 payment to principal
STEP 3: Find the new principal.
Previous Balance ⴚ Payment to Principal
$80,000.00  $53.87
 $79,946.13 new principal

80000 8 6400 1 12 533.33 587.20

533.33 53.87 80000 53.87 79946.13

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter. In the
example above, the new principal is $79,946.13. For the second payment, find:
1. The interest on $79,946.13.
2. The payment to principal.
3. The new balance.

Example 2
The amount of principal that you owe decreases with each payment that you
make. The chart shows the interest and principal paid for payment numbers 325,
326, and 327 on an original $80,000 mortgage loan. For payment number 328,
what is the interest? What is the payment to principal? What is the new principal?

Figure 10.3 $80,000 Mortgage Loan at 8% for 30 Years

Payment Monthly Amount for Amount for Balance

Number Payment Interest Principal $18,517.69
325 $587.20 $123.45 $463.75 $18,053.94
326 587.20 120.36 466.84 17,587.10
327 587.20 117.25 469.95 17,117.15

352 䊴 Chapter 10 Housing Costs

 STEP 1: Find the interest.
Principal ⴛ Rate ⴛ Time
1
$17,117.15
8%
12
 $114.11 interest
STEP 2: Find the payment to principal.
Monthly Payment ⴚ Interest
$587.20  $114.11
 $473.09 payment to principal
STEP 3: Find the new principal.
Previous Balance ⴚ Payment to Principal
$17,117.15  $473.09
 $16,644.06 new principal

CONCEPT CHECK

In the example above, the new principal is $16,644.06. For payment number
329, find:
4. The interest on $16,644.06.
5. The payment to principal.
6. The new balance.

SECTION 10-4 PRACTICE

Mortgage Interest 1st Monthly Amount for Amount for New

Amount Rate Payment Interest Principal Principal

7. $ 50,000 8.0% $ 478.00 $333.33 $144.67 a.

8. 70,000 6.0% 420.00 a. b. c.
9. 60,000 5.5% 368.40 a. b. c.
10. 120,000 6.5% 1,045.20 a. b. c.
11. 225,000 7.0% 1,437.75 a. b. c.

12. Lois Larczyk.

Mortgage loan of $46,000.00.
Interest rate is 5 percent.
Monthly payment is $269.10.
How much of the first monthly payment is for interest?
13. Patrick Yunker.
Mortgage loan of $84,000.
Interest rate is 6 percent.
Monthly payment is $504.
How much of the first monthly payment is for interest?

Continued on next page

S e c t i o n 1 0 - 4 The Monthly Pay me nt 䊳 353

 14. Matthew Roberts.
Mortgage loan of $38,600.00.
Interest rate is 5.5 percent.
Monthly payment is $265.57.
a. How much of the first monthly payment is for interest?
b. How much of the first payment is for principal?
c. What is the new principal?
15. Dee Pollom.
Mortgage loan of $98,000.00.
Interest rate is 7.5 percent.
Monthly payment is $686.00.
a. How much of the first monthly payment is for interest?
b. How much of the first payment is for principal?
c. What is the new principal?
16. Jill Barley obtained a 25-year, $60,000.00 mortgage loan from University
Savings and Loan Association. The interest rate is 6 percent. The monthly
payment is $386.40. For the first payment, what is the interest? What is the
payment to principal? What is the new balance?
17. Norman Foster obtained a 30-year, $180,000.00 mortgage loan from
American Savings and Loan Association. The interest rate is 7 percent. His
monthly payment is $1,197.00. For the first payment, what is the interest?
What is the payment to principal? What is the new balance?
18. Amelia McGuire obtained a 20-year, $36,000.00 mortgage loan from Society
Trust Company. The interest rate is 11.5 percent. Her monthly payment is
$383.76. Use this portion of the repayment schedule to find the remaining
debt after the payment numbers 42 and 43.

Payment Monthly Amount for Amount for New

Number Payment Interest Principal Balance

41 $383.76 $70.78 $312.98 $7,072.32

42 383.76 a. b. c.

43 383.76 d. e. f.

MAINTAINING YOUR SKILLS

Subtract.
Skill 6: Subtracting 19. 48,000  29.46 20. 91,800  39.55 21. 24,400  23.12
Decimals, page 733
22. 78,902  22.98 23. 18,185  45.11 24. 14,915  107.7

354 䊴 Chapter 10 Housing Costs

 Real Estate Taxes
When you own a home, you’ll have to pay city or county real estate taxes .
The money collected is used to operate and maintain roads, parks, schools,
Calculate the government offices, and other city expenses. The amount of real estate tax
assessed value and that you pay in one year depends on:
real estate taxes. • the assessed value of your property (this is the dollar value assigned to a
property by a tax assessor for taxation purposes).
• the tax rate .
The assessed value is found by multiplying the market value of your
property by the rate of assessment . The market value is the price at which a
house can be bought or sold. An assessor hired by the municipality determines
the market value. The rate of assessment is a percent.
The tax rate is sometimes expressed in mills per dollar of assessed value of
property. A mill is $0.001. A tax rate of 80 mills is a tax rate of $80 per $1,000 of
assessed value. When working with mills, it is often convenient to express mills in
dollars by dividing by 1,000.
You might ask yourself again:

Important Questions What Formulas Do I Use?

How do I find the
Assessed Value  Market Value
Rate of Assessment
assessed value?
How do I find the
Real Estate Tax  Tax Rate
Assessed Value
real estate tax?
How do I calculate mills Mill  $0.001 or
per dollar of valuation? Mill  $1.00  1,000

The Hunt to Find a Home

You Have Other Costs to Consider Later that evening, after

their children are in bed, the Sultans sit at their kitchen table
and talk about their finances and whether they’ll be able to
swing the cost of buying a house. Their housing costs include
principal, interest, and closing costs. In addition, they must
have enough money to pay for insurance and real estate taxes.
Draw Conclusions What are the benefits of spreading out
tax payments?
Continued on page 357

Example 1
The Fulton County tax assessor determined that the market value of Courtland
Farm is $340,000.00. The rate of assessment in Fulton County is 40 percent
of market value. The tax rate is 50.73 mills. What is the real estate tax on
Courtland Farm?
Continued on next page
S e c t i o n 1 0 - 5 Real Estate Taxes 䊳 355
 STEP 1: Find the assessed value.
Market Value ⴛ Rate of Assessment
$340,000.00
40%  $136,000.00 assessed value
STEP 2: Express the tax rate as a decimal.
50.73 mills  1,000.00  0.05073 tax rate
STEP 3: Find the real estate tax.
Tax Rate ⴛ Assessed Value
0.05073
$136,000.00  $6,899.28 real estate tax
340000 40 136000 50.73 1000
0.05073 136000 6899.28

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter. The
tax rate is 65.50 mills, market value is $70,000.00, and rate of assessment is 40
percent. Find the following:
1. The assessed value. 2. The tax rate as a decimal. 3. The real estate tax.

SECTION 10-5 PRACTICE

4. Lima’s home. 5. The Simms’ condominium.

Market value is $72,000. Market value is $159,800.
Rate of assessment is 30 percent. Rate of assessment is 40 percent.
What is the assessed value? What is the assessed value?
6. Brenda Roth’s home is located in Columbus, Ohio, where the rate of
assessment is 35 percent of market value. The tax rate is $59.56 per $1,000
of assessed value. Her home has a market value of $392,000.00. What is its
assessed value? What is the property tax?
7. The rate of assessment in Foster, Rhode Island, is 50 percent. The tax rate is
$40.20 per $1,000 of assessed value. What is the real estate tax on a piece of
property that has a market value of $236,000.00?
8. Ali and Jackie Erwin live in Providence, Rhode Island, where the tax rate is
29.52 mills. The rate of assessment is 100 percent. The property that the Erwins
own has a market value of $98,400.00. What is their real estate tax for a year?
9. Jose and Trudy Engstrom own a home that has a market value of $675,000.00.
They live in Richmond, Virginia, where the rate of assessment is 80 percent
and the tax rate is 25.13 mills. What is the annual real estate tax?
10. Gina and Tony Jasinski received a tax statement showing that their land has
an assessed value of $7,500 and their buildings have an assessed value of
$42,300. The rate of assessment in their locality is 40 percent. What is the
market value of their property?

MAINTAINING YOUR SKILLS

Skill 8: Multiplying Multiply.
Decimals, page 735
Skill 30: Finding
11. 37.3
78.4 12. 13.18
9.42 13. 13.30
4.37
the Percentage, Find the percentage.
page 757 14. 90,000
20% 15. 140,000
45% 16. 45,500
33%

356 䊴 Chapter 10 Housing Costs

 Homeowners Insurance
Once you’re a homeowner, you’ll want to protect yourself from losses such as fire,
theft, and personal liability. To be covered for this protection, you’ll want to buy
Work out the homeowners insurance . This policy also includes loss-of-use coverage . Let’s
amount of say that your house is damaged and unlivable, so you’re forced to live in a hotel
coverage. for a couple of weeks. The loss-of-use coverage pays for the expenses of living
away from home while the reparations are being completed.
What else does homeowners insurance protect you against? What if a
neighbor falls off the deck of your house and breaks her leg? Are you responsible
for her accident? Maybe. Just in case that neighbor thinks you are at fault, then
personal liability and medical coverage will protect you from financial losses.
To receive full payment for any loss up to the amount of the policy, you
must insure your home for at least
Percent
Figure 10.4 Coverage 80 percent of its replacement value .
Covered
The replacement value is the amount
Garage and other structures 10% required to reconstruct your home if
Loss of use 20% it’s destroyed. Insurance companies
Personal property 50% use the amount of coverage on your
home to calculate the amount of
coverage you receive on your garage, personal property, and for loss of use.
Remember to ask yourself this question:
Important Question What Formula Do I Use?
How do I find the amount of
Amount of Coverage
coverage for each type of Amount of Coverage 
Percent
on Home
protection?

The Hunt to Find a Home

Protect Yourself “What did Mr. Ayala say would be covered in

homeowners insurance?” Sheridan asks.
“He said it would cover losses due to fire and theft,” Torian
says. “And if we can’t live in the house for a while, it should
cover the expense of renting a place.”
Draw Conclusions Suppose that someone comes onto their
property and falls on the droopy porch and gets hurt. How will
they protect themselves against a lawsuit?
Continued on page 359

Example 1
The replacement value of Joy and Ron Amodeo’s home is estimated at $94,000.
They have insured their home for 80 percent of its replacement value. According
to the guidelines above and using Figure 10.4, what is the amount of coverage on
the Amodeo’s personal property?
Continued on next page
S e c t i o n 1 0 - 6 Ho m e o w n e r s Ins u ra n c e 䊳 357
 STEP 1: Find the amount of coverage on the home.
Replacement Value ⴛ Percent
$94,000
80%  $75,200 coverage on home
STEP 2: Find the amount of coverage on personal property.
Amount of Coverage on Home ⴛ Percent
$75,200
50%
 $37,600 coverage on personal property

94000 80 75200 50 37600

CONCEPT CHECK

Complete the problems, then check your answers at the end of the chapter. A
home is insured for 90 percent of its replacement value of $120,000, or $108,000.
Using the percents from Figure 10.4 on page 357, find the coverage for:
1. Personal property. 2. Loss of use. 3. Garage.

SECTION 10-6 PRACTICE

Use Figure 10.4 on page 357 for the percent of coverage.

4. Replacement value of the home is $70,000. Eighty percent of the home is
covered. What is the amount of insurance?
5. Replacement value of the home is $95,000. One hundred percent of the
home is covered. What is the amount of insurance?
6. Replacement value of the home is $38,500. Ninety percent of the home
is covered.
a. What is the amount of insurance?
b. What is the amount of coverage for personal property?
7. Replacement value of the home is $144,000. Eighty percent of the home
is covered.
a. What is the amount of insurance?
b. What is the amount of coverage for loss of use?
8. A home has a replacement value of $324,000. The owners insure the new
home for 90 percent of its replacement value.
a. What is the amount of insurance on their home?
b. What is the amount of coverage on their garage?
9. A home has a replacement value of $324,000. The owners insure the new
home for 80 percent of its replacement value.
a. What is the amount of insurance on their home?
b. What is the amount of coverage for personal property?
c. What is the amount of coverage for loss of use?
d. What is the amount of coverage on their garage?

MAINTAINING YOUR SKILLS

Skill 30: Finding Find the percentage.
the Percentage,
page 757 10. 10% of $90,000 11. 80% of $30,000 12. 50% of 140,000

358 䊴 Chapter 10 Housing Costs

 Homeowners
Insurance Premium
Calculate What matters the most when buying a home? As they say in real estate: location,
the annual location, location. Are you living in a crime-ridden area? Or what about on a
homeowners mountain vista? Your location even affects your homeowners policy premium —
insurance the amount you have to pay for insurance coverage. Also the type of house—
premium. brick masonry veneer or wood frame—affects your premium. The home will be
assigned a number that reflects how fire resistant your house is and how close
you are to a water source. This number is called your fire protection class .

The Hunt to Find a Home

The Insurer Assures You Coverage The Sultans include the cost
of homeowners insurance in their total. They look through the
information they got at the bank and find the estimated premium
for their homeowners insurance on the house they hope to buy.
Draw Conclusions How does an insurance company compute
the amount of your premium?
Continued on page 361

Figure 10.5 Homeowners Insurance Premiums

Annual Premiums for a Typical Homeowners Policy
Amount of Brick/Masonry Veneer Wood Frame
Insurance Fire Protection Class Fire Protection Class
Coverage 1–6 7–8 9 10 11 1–6 7–8 9 10 11
$ 40,000 $ 166 $ 170 $ 225 $ 237 $ 270 $ 178 $ 183 $ 237 $ 248 $ 285
45,000 173 178 233 244 280 187 191 248 260 298
50,000 178 183 241 254 290 190 195 254 265 304
60,000 191 196 259 273 313 205 211 273 287 328
70,000 213 216 285 299 343 225 231 299 315 360
80,000 241 248 328 343 394 257 265 343 363 415
90,000 268 276 365 384 441 289 296 384 403 464
100,000 298 307 407 426 490 320 329 426 449 515
120,000 354 364 484 508 584 381 391 508 534 614
150,000 459 471 625 657 755 493 506 657 692 794
200,000 616 633 841 884 1,017 662 680 884 931 1,070
250,000 737 754 961 1,021 1,167 780 798 1,021 1,086 1,243
300,000 879 901 1,147 1,218 1,394 931 953 1,218 1,295 1,483
400,000 1,021 1,045 1,331 1,413 1,617 1,067 1,105 1,413 1,504 1,723
500,000 1,309 1,340 1,707 1,812 2,074 1,385 1,418 1,812 1,929 2,209

S e c t i o n 1 0 - 7 Ho m e o w n e r s Ins u ra n c e Pre m i u m 䊳 359

 Example 1
The replacement value of Marcia Syke’s home is $150,000. She has insured her home
for 80 percent of its replacement value. The home is of wood-frame construction
and has been rated in fire protection class 4. What is the annual premium?
STEP 1: Find the amount of coverage.
Replacement Insured Percent of
ⴛ
Value of Home Replacement Value
$150,000
80%  $120,000 coverage on home
STEP 2: Find the annual premium. (See Figure 10.5 on page 359.)
• Find the column, Wood Frame.
• Find the Fire Protection Class 1–6 column.
• Find the Amount of Insurance Coverage row with 120,000.
• Follow across the row and down the column to where 120,000 and
1–6 meet.
 $381 annual premium

CONCEPT CHECK
Complete the problems, then check your answers at the end of the chapter. For
Problems 1 and 2, find the annual insurance premium. Use Figure 10.5 on page 359.
1. Replacement cost is $100,000. 2. Replacement cost is $200,000.
Insured at 80 percent. Insured at 75 percent.
Wood frame, protection class 5. Brick, protection class 11.

SECTION 10-7 PRACTICE

Use Figure 10.5 on page 359 to find the annual premium.
3. The Campbells’ $50,000 4. Kuen Yee’s $100,000
wood frame house. brick home.
A $40,000 homeowners policy. A $80,000 homeowners policy.
Fire protection class 8. Fire protection class 11.
What is the annual premium? What is the annual premium?
5. The Smiths own a wood-frame home in an area rated fire protection class 1.
Their two-family home has a replacement value of $250,000 and is insured
for 80 percent. What is their annual premium?
6. The Quicks own a brick home that has a replacement value of $375,000.
They purchased a homeowners policy for 80 percent of its replacement
value. They live in an area rated fire protection class 9. What is their annual
policy premium? What would the premium be if they were in class 11?
7. Nelia and Gary Penn own a brick home with a market value and replacement
value of $150,000.00. They insured their home for 100 percent of its replacement
value. The Penns live in an area where the rate of assessment is 35 percent, the tax
rate is 51.58 mills, and the fire protection is rated class 6. They have a $120,000.00
mortgage at 8 percent for 20 years. How much is the monthly payment for the
mortgage, real estate taxes, and insurance?

MAINTAINING YOUR SKILLS

Find the percentage.
Skill 30: Finding
the Percentage, 8. 70% of 90,000 9. 80% of 140,000 10. 96% of 148,000
page 757 11. 50% of 70,000 12. 40% of 84,500 13. 15% of 71,400

360 䊴 Chapter 10 Housing Costs

 Other Housing Costs
In addition to your monthly mortgage payment, real estate taxes, and insurance
payment, you’ll have expenses for utilities, maintenance, and home improve-
Compute the ments. Utility costs may include charges for electricity, gas, water, telephone,
total housing cost cell phone, cable TV, Internet service, repairs, and heating fuel. The Federal
and compare it Housing Administration (FHA) recommends that your total monthly housing
with suggested cost be less than 35 percent of your monthly net pay or take home pay.
guidelines.

The Hunt to Find a Home

What Else Do You Have to Pay For? Before they call it a night,
the Sultans estimate the other costs of a new house. These will
include gas and electricity; water, sewer, and trash collection;
telephone, cable, and Internet service; and repairs.
Draw Conclusions Currently, who pays for their apartment’s
repairs? Who pays for the repairs once they own a home?
Continued on page 365

Example 1
Sue and Paul Kwan have a
Figure 10.6 Housing Expenses for May
combined monthly take-home
Mortgage payment $698.24 pay of $3,320. The list of expenses
Insurance ($303  12) 25.25 for May is shown. Were their
Real estate taxes ($1,885  12) 157.08 housing costs for May within
Electricity 65.90 the FHA guidelines?
Heating fuel 54.20 STEP 1: Find the total monthly cost.
Telephone 36.18
Sum of expenses:
Water 26.20
 $1,221.63
Cell phone 29.95
Satellite TV service 39.95 STEP 2: Find the recommended
Loan payment on oven 50.00 maximum.
Repair storm door 38.68 $3,320.00
35%
 $1,162.00
STEP 3: Compare. Is the total monthly cost less than the
recommended maximum?
Is $1,221.63 less than $1,162.00?
No, the Kwans are not within the guidelines.
698.24 25.25 157.08 65.9 54.2 36.18
26.2 29.95 39.95 50 38.68 1221.63
3320 35 1,162

S e c t i o n 1 0 - 8 Othe r Housing Costs 䊳 361

 CONCEPT CHECK

Complete the problem, then check your answer at the end of the chapter.

Housing Expenses for April 1. Dan Hosteler has a monthly

take-home pay of $4,100. The
Mortgage payment $644.00 list of expenses for April is
Insurance ($490  12) 40.83 shown. Were his housing costs
Real estate taxes ($2,740  12) 228.38 for April within the FHA
Electricity 66.24 guidelines?
Heating fuel 78.26
Telephone 39.62
Water 45.25
Cell phone 39.95
Satellite service 51.50
Home equity loan 75.00
Miscellaneous repairs 59.65

SECTION 10-8 PRACTICE

Find the recommended FHA maximum. (Round to nearest $1.)

Monthly Net Pay Recommended FHA Minimum

2. $1,100
3. 3,900
4. 880
5. 4,284
6. 5,439
7. 7,942

Housing Expenses for June 8. Joshua and Peg Ryder.

Figure 10.7
Monthly net pay is $1,980.
Rent payment $450.00 a. Find the total housing
Renters insurance 12.50 cost. (See Figure 10.7.)
Electricity 55.44 b. Is it within the FHA
Gas—heat 44.00 recommendation?
Basic cable service 22.50
Telephone service 44.98
Appliance loan 82.35

Figure 10.8 Condo Expenses for March 9. Frank and Yvette Shelby.
Monthly net pay is $3,200.
Mortgage payment $533.50 a. Find the total housing
Insurance 19.75 cost. (See Figure 10.8.)
Home equity loan 132.40 b. Is it within the FHA
Electricity 75.80 recommendation?
Gas—heat 85.00
Satellite TV 51.00
Telephone service 29.45
Condo fee 155.00
Water 22.00

362 䊴 Chapter 10 Housing Costs

 10. Fara Pinkston recorded her housing expenses for the month of August:
mortgage payment, $347.90; insurance, $17.00; taxes, $84.00; electricity,
$64.40; phone service, $33.50; fuel, $98.25; water, $17.44; and repairs, $79.87.
Her monthly take-home pay is $2,150.00. What is her total monthly cost? Is
it within the FHA recommendation?
11. Melvin Hayashi recorded his housing expenses for the month of December:
$548.36 for mortgage payment, $29.50 for insurance premium, $122.50 for
real estate taxes, $46.75 for refrigerator installment payment, $104.70 for
electricity, $34.40 for telephone service, $86.70 for home heating oil, and
$21.80 for water. His monthly take-home pay is $2,500.00. What is his total
monthly housing cost? Is it within the FHA recommendation?
12. David and Helen Voss have a Annual Home Expenses
combined monthly net income
of $4,750.00. Their records show Water/sewer charges $ 292.00
that for last year they paid Electricity 940.00
$10,789.20 in mortgage payments, Telephone service 559.92
$281.00 for insurance premiums, Water heater 490.32
and $2,085.00 in real estate taxes. Repair windows 580.10
In addition, they had the expenses New air conditioner 2,458.68
shown. What was their average Replace gutters 1,760.00
monthly housing cost for last New lawn mower 579.20
year? Was it within the FHA Total
recommendation?
For Problem 13, use Figure 10.1 on page 346 to find the loan payment and
Figure 10.5 on page 359 to find the insurance premium.
13. Molly and Chris Spaulding recently purchased a brick house for $150,000.00.
They made a 20 percent down payment and financed the remaining amount
at 8 percent for 30 years. The tax rate in their area is 71.57 mills and the rate
of assessment is 40 percent. They purchased a homeowners insurance policy
for the purchase price of the house. The fire protection in the neighborhood
is rated class 9. For the month of August, they recorded the following housing
expenses: $69.20 for electricity, $44.85 for telephone service, $39.95 for cable
TV, $18.80 for water, and $74.65 to repair a door. They have a combined
monthly net income of $5,400.00. What is their monthly mortgage payment?
What is the monthly insurance premium? What are their monthly taxes?
What was their total monthly housing cost for August? Is it within the FHA
recommendation?

MAINTAINING YOUR SKILLS

Which number is greater?

Skill 1: Numbers, 14. 2,109.8 or 2,107.9 15. 7,484.08 or 74,846.50
page 727
Skill 5: Adding Add.
Decimals, page 732
16. 85.89  74.84  35.30  306.24 17. 456.26  24.98  24.50  9.39
Skill 30: Finding
the Percentage, Find the percentage. Round answers to the nearest hundredth.
page 757
18. 35% of 8,300 19. 40% of 4,600

S e c t i o n 1 0 - 8 O t h e r Hou s i n g Co s t s 䊳 363
 10
CONCEPT CHECK (p. 345)
1. $80,000
0.25  $20,000; $80,000  $20,000  $60,000
2. $200,000
0.30  $60,000; $200,000  $60,000  $140,000

CONCEPT CHECK (p. 347)

1. $90,000.00
$6.60  $594.00 monthly payment
$1,000.00
$594.00
12
20  $142,560.00 amount paid
$142,560.00  $90,000.00  $52,560.00 interest charged
CONCEPT CHECK (p. 350)
1. Find the mortgage $105,000
0.10  $10,500
amount. $105,000  $10,500  $94,500
Find the sum of Credit report $ 65.00
the bank fees. Loan origination: $94,500
2% 1,890.00
Abstract of title 120.00
Attorney fee 250.00
Documentation stamp: $94,500
0.3% 283.50
Processing fee: $94,500
1.10% 1,039.50
Total Closing Costs $3,648.00
Amount of Mortgage ⴙ Closing Costs
$94,500.00  $3,648.00 $98,148.00 amount financed
CONCEPT CHECK (p. 352, 353)
1
1. Interest on $79,946.13: $79,946.13
8%
12  $532.97
2. Payment to principal: $587.20  $532.97  $54.23
3. New balance: $79,946.13  $54.23  $79,891.90
1
4. Interest on $16,644.06: $16,644.06
8%
12  $110.96
5. Payment to principal: $587.20  $110.96  $476.24
6. New balance: $16,644.06  $476.24  $16,167.82
CONCEPT CHECK (p. 356)
1. $70,000
0.40  $28,000 2. 65.50  1,000  0.0655
3. 0.0655
$28,000  $1,834

CONCEPT CHECK (p. 358)

1. $54,000 2. $21,600 3. $10,800

CONCEPT CHECK (p. 360)

1. Coverage is $100,000
80%  $80,000; Wood frame, class 5, premium is $257
2. Coverage is $200,000
75%  $150,000; Brick, class 11, premium is $755

CONCEPT CHECK (p. 362)

1. Total monthly cost  $1,368.68; Recommended maximum  $4,100

35%  $1,435; $1,435  $1,368.68; Total monthly cost is less than
recommended maximum, therefore, within the guidelines.

364 䊴 Chapter 10 Housing Costs

 10

The Hunt to Find a Home

Analyze the Story The Sultans had a lot to consider before signing
the dotted line and turning over a down payment. They had to
consider a feasible monthly mortgage, the cost of utilities and other
services, and taxes and insurance.
Drawing. As a class come up with your own plan to purchase
a home. Make a table or chart showing your monthly expenses
and annual expenses (like taxes and insurance). Ask friends and
family members what are typical costs involved based upon living
in your area.
Examining. Buying a home requires many trade-offs. For
example, the house you might want to live in is close to work,
but it’s too expensive. Different life situations will require
different housing choices. What might be a wise housing choice
for a single parent—buying or renting?

REVIEW OF KEY WORDS

mortgage loan (p. 344) tax rate (p. 355) medical coverage (p. 357)
interest (p. 346) market value (p. 355) replacement value (p. 357)
closing costs (p. 349) rate of assessment (p. 355) premium (p. 359)
principal (p. 351) homeowners insurance (p. 357) fire protection class (p. 359)
real estate taxes (p. 355) loss-of-use coverage (p. 357) utility costs (p. 361)
assessed value (p. 355) personal liability (p. 357)
Match one of the key words above with a definition below.
1. an amount paid for an insurance policy. 7. the price at which a house can be bought
2. a loan whereby the lender has the right to sell or sold.
the property if payments are not made. 8. pays for the expenses of living away from
3. fees paid at the time documents are signed home while home reparations are being
transferring ownership of a home. completed.
4. public services such as water, phone, 9. the amount required to reconstruct your
electricity, and garbage pickup. home if it is destroyed.
5. an amount owed upon which interest 10. a number that reflects the quality of fire
charged is calculated. protection in your area.
6. fees collected on the ownership of property
used to support the operation of government.

St udy Guide and Ass essme nt 䊳 365

 10

SECTION OBJECTIVE 10-1 AND EXAMPLES

Compute the mortgage loan amount.

Desiree Ramsey is considering the purchase of a new condominium for
$95,500. A 20 percent down payment is required. What is the amount of the
mortgage loan needed to finance the purchase?
STEP 1: Find the down payment. STEP 2: Find the mortgage loan amount.
$95,500
20%  $19,100 Selling Price ⴚ Down Payment
$95,500  $19,100
 $76,400 mortgage loan amount.
REVIEW EXERCISES
Complete the table below.
Selling Price Down Payment Down Payment Mortgage Loan Amount
11. $132,600 25.0% a. b.
12. 87,500 15.0% a. b.
13. 306,200 17 –12 % a. b.
1
14. 198,000 –
8 a. b.

SECTION OBJECTIVE 10-2 AND EXAMPLES

Determine the monthly payment, total amount paid, and total interest charged.
Dee and Cissy White have applied for a $125,500 mortgage loan at an annual interest
rate of 6 percent. The loan is for a period of 25 years and will be paid in equal monthly
payments that include interest. What is the total amount of interest charged?
STEP 1: Find the monthly payment. (Refer to STEP 2: Find the amount paid.
Figure 10.1 on page 346.) Monthly Number of
Monthly Payment ⴛ Payments
Amount of Mortgage
ⴛ Payment for $808.22
(12 months
25 years)
$1,000
a $1,000 Loan $808.22
300
$125,500
$6.44  $242,466 amount paid
$1,000
STEP 3: Find the total interest charged.
 $808.22 monthly payment
Amount Paid ⴚ Amount of Mortgage
$242,466  $125,000
 $116,966 total interest charged
REVIEW EXERCISES
Complete the table below.
Mortgage Years Rate Monthly Payment Total Amount Paid Total Interest Charged
15. $ 75,500 25 5.5% a. b. c.
16. 83,900 20 6.0% a. b. c.
17. 123,900 25 6.5% a. b. c.
18. 156,000 30 7.5% a. b. c.

366 䊴 Chapter 10 Housing Costs

 10
SECTION OBJECTIVE 10-3 AND EXAMPLES

Figure out the total closing costs.

Shannon and Glenn Shelton have been granted a $150,000 loan. When Closing Costs
they sign the papers to purchase their new home, they will have to
pay the closing costs shown. What is the total of their closing costs? Appraisal fee $250
Credit report 75
What is the actual amount financed with the mortgage?
Title search 275
STEP 1: Find the closing costs. (Refer to the chart next to this problem.) Service fee 1.3% of
$250  $75  $275  ($150,000
1.3%)  $295  $2,845 mortgage
Legal fees 295
STEP 2: Find the actual amount financed.
Amount of Mortgage ⴙ Closing Costs
$150,000  $2,845
 $152,845 amount financed Closing Costs
REVIEW EXERCISES Credit report $ 55
Use the list of closing costs for Problems 19–22. Loan 2% of
origination mortgage
19. Sung and Mu Lee. 21. Josh and Judy Jones. Abstract of title 155
Mortgage loan of $245,600. Mortgage loan of $128,300. Attorney fee 325
What are the total closing costs? What are the total closing costs? Documentation 0.325% of
stamp mortgage
20. Greg and Kaye Meiers. 22. Rochelle St. James.
Processing 1.10% of
Mortgage loan of $97,500. Mortgage loan of $88,000. fee mortgage
What are the total closing costs? What are the total closing costs?

SECTION OBJECTIVE 10-4 AND EXAMPLES

Compute the allocation of monthly payment toward principal, interest, and the
new principal.
Rowena Tinley obtained a 30-year $90,000.00 mortgage from State Bank. The interest
rate is 7.5 percent. Her monthly payment is $629.10. For the first payment, what is
the interest? What is the payment to principal? What is the new principal?
STEP 1: Find the interest. Principal ⴛ Rate ⴛ Time
1
$90,000.00
7.5%
12  $562.50 interest
STEP 2: Find the payment Monthly Payment ⴚ Interest
to principal. $629.10  $562.50  $66.60 payment to principal
STEP 3: Find the new Previous Balance ⴚ Payment to Principal
principal. $90,000.00  $66.60  $89,933.40 new principal
REVIEW EXERCISES
Complete the table below.
Mortgage Interest First Monthly Amount for Amount for New
Amount Rate Payment Interest Principal Principal
23. $ 60,000 7.0% $ 399.00 a. b. c.
24. 130,000 5.5% 738.40 a. b. c.
25. 145,500 6.0% 873.00 a. b. c.
26. 159,900 5.0% 858.66 a. b. c.

St udy Guide and Ass essme nt 䊳 367

 10
SECTION OBJECTIVE 10-5 AND EXAMPLES

Calculate the assessed value and real estate taxes.

The Orange County tax assessor stated that the market value of the Marvin Hotel
is $950,000. The rate of assessment in Orange County is 55 percent of market
value. The tax rate is 34.50 mills. What is the real estate tax on the Marvin Hotel?
STEP 1: Find the assessed value. Market Value ⴛ Rate of Assessment
$950,000
55%  $522,500 assessed value
STEP 2: Express the tax rate as a decimal. 34.50 mills  1,000  0.0345 tax rate
STEP 3: Find the real estate tax. Tax Rate ⴛ Assessed Value
0.0345
$522,500.00  $18,026.25 real estate tax
REVIEW EXERCISES
27. The tax rate is 54.5 mills, the market value 29. Harvey and Marie Levan own a home with a
is $95,000, and the rate of assessment is 45 market value of $542,000. The rate of assess-
percent. Find the assessed value, the tax ment is 60 percent and the tax rate is 24.31
rate as a decimal, and the real estate tax. mills. What is the annual real estate tax?
28. Se Ri Pak’s home is located in a town 30. Steve and Shelia Hitt own a home in a
where the rate of assessment is 30 percent retirement community. The home has a
of market value. The tax rate is $43.46 per market value of $87,400. The rate of
$1,000 of assessed value. His home has a assessment is 50 percent and the tax rate is
market value of $229,500. What is the $30.45 per $1,000 of assessed value. What
assessed value? What is the property tax? is their yearly real estate tax?

SECTION OBJECTIVE 10-6 AND EXAMPLES

Work out the amount of coverage.

Use Figure 10.4 on page 357 to answer the problems in this section. The replacement
value of Todd and Melissa Dewey’s home is $86,500. They have insured their home
for 80 percent of the replacement value. According to the guidelines found in Figure
10.4, what is the amount of coverage on the Deweys’ personal property?
STEP 1: Find the amount of coverage on the home. Replacement Value ⴛ Percent
$86,500
80%  $69,200
STEP 2: Find the amount of coverage on personal property.
Amount of Coverage on Home ⴛ Percent
$69,200
50%  $34,600 coverage on personal property
REVIEW EXERCISES
Find the amount of coverage and the amount of insurance.
Replacement Value Percent Covered Amount of Coverage Amount of Insurance for Garage

31. $124,500 90% a. —

32. 65,000 75% a. —
33. 250,000 85% a. b.
34. 87,000 80% a. —

368 䊴 Chapter 10 Housing Costs

 10
SECTION OBJECTIVE 10-7 AND EXAMPLES

Calculate the annual homeowners insurance premium.

The Cunninghams’ wood-frame house. Replacement value of $150,000. Fire
protection class 10. What is the annual premium? (Use Figure 10.5 on page 359
to answer the problem.)
Answer: $692
REVIEW EXERCISES
Complete the table below. (Use Figure 10.5 on page 359 to answer the problems.)
Type of Replacement Percent Fire Protection Annual
Construction Value Covered Class Premium
35. Brick $100,000 80% 5
36. Brick 100,000 90% 11
37. Wood frame 120,000 100% 8
38. Wood frame 200,000 75% 10

SECTION OBJECTIVE 10-8 AND EXAMPLES

Compute the total housing cost and compare it

Housing Expenses for April
with suggested guidelines.
Peter and Lucy Cole have a combined monthly Rent payment $886.50
take-home pay of $2,550. They keep a record Renters insurance 36.00
of their monthly housing expenses. The list of Gas—heat 54.00
Electricity 108.20
expenses for April is shown. Were their housing
Telephone service 35.50
costs for April within FHA guidelines?
STEP 1: Find the monthly cost.
$886.50  $36.00  $54.00  $108.20  $35.50  $1,120.20
STEP 2: Find the recommended maximum.
$2,550.00
35%  $892.50
STEP 3: Compare. Is the total monthly cost less than the recommended maximum?
Is $1,120.20 less than $892.50? No, the Coles are not within the guidelines.
REVIEW EXERCISES
Find the recommended FHA maximum. (Round to nearest $1.)
Monthly Net Pay Recommended FHA Maximum

39. $2,540
40. 3,298
41. 1,298
42. 5,496

St udy Guide and Ass essme nt 䊳 369