Practical Application 1

Let's assume you purchased a new car and financed it through the dealer.The purchase price was $30,000 including all fees, taxes and delivery costs.

The dealer offered an 'all inclusive' financing plan at a 12% rate.Your 30 monthly payments were $1,300, derived by adding interest of $9,000 to the $30,000 and dividing by 30 monthly payments.

Your friends tell you that your interest rate is above 20% and that you should have borrowed from your home equity line at a lower rate.Are they right?

Practical Application 2Part A

You wish to purchase a home and have been very successful in saving $12,000 for a down payment.

You can get a 30 year mortgage at a fixed rate of 11.5%.The most you can afford is $630 / month for payment.

What's the maximum you can pay for a house?

Part B

You plan to be married soon and your partner can contribute $250/month toward the monthly payment, but nothing toward the down payment.

Now what price can you afford to pay?

Part C

You have learned of a special bank offer to first-time home buyers.Interest rates will be dropped to 9% for the life of the mortgage.

Now, what can you afford to pay?