Go get a pencil, boys and girls. Today`s column is a pop quiz. It`s part of the same test given to 1,139 persons late last spring.
Before we get to the questions, let me tell you how those who went before you did. In a word: lousy. On average, they answered only 54 percent of the 249 questions correctly.
Yes, those who took the first comprehensive examination of the nation`s consumer knowledge failed miserably. By simply guessing, anyone should get about 25 percent right.
They did especially poorly on the housing related questions. In fact, of the six general areas covered by the test, scores were lowest on housing.
While they did fairly well on rental questions, getting an average of 60 percent right, they answered only 45 percent of the questions related to purchasing a home correctly. That`s the worst of any category covered in the test.
”There is widespread ignorance about how to buy a house efficiently,”
said a report by the Consumer Federation of America, which conducted the test with the Educational Testing Service.
So the pressure`s off. You only have to answer eight of the following 16 questions correctly to be smarter than average. You`ll find the answers at the end:
1. When used in reference to a home mortgage, the term ”points” means:
a) Key paragraphs in the mortgage contract.
b) The difference between the simple interest rate charged for the mortgage and the annual percentage rate.
c) A measure of the credit rating of the mortgage applicant.
d) A percentage of the mortgage amount paid to the lender at closing.
2. The best indicator of the cost of a loan is:
a) Annual percentage rate.
b) Interest rate.
c) Monthly payment amount.
d) Number of monthly payments.
3. On a 30-year fixed-rate mortgage, how much of the principal of the loan will be paid off after 10 years?
a) Less than one-third.
b) About one-third.
c) About half.
d) More than half.
4. In most home sales, the real estate agent legally represents:
a) The mortgage company.
b) The buyer only.
c) The seller only.
d) Both the buyer and seller.
5. A real estate agent`s commission is generally what percent of the sales price?
a) 2 percent.
b) 4 percent.
c) 6 percent.
d) 10 percent.
6. Which of the following is true about home equity loans?
a) They are available only for home improvement.
b) They are less expensive than second mortgages.
c) They put the consumer`s home at risk.
d) They are never tax deductible.
7. At the time of settlement on a house, the purchase of title insurance may be required to protect the interests of the:
a) Buyer.
b) Seller.
c) Real estate agent.
d) Lender.
8. All of the following affect the size of monthly adjustable-rate mortgage payments except the:
a) Index rate used by the lender.
b) Margin used by the lender.
c) Principal borrowed.
d) Assumability of the loan.
9. Which element of a home mortgage usually accounts for the largest portion of the early payments?
a) Principal.
b) Taxes.
c) Interest.
d) Escrow.
10. A homeowner takes out a $50,000 loan at 10 percent interest, to be paid over 20 years. The total amount paid by the owners over the 20-year period will be about:
a) $75,000.
b) $100,000.
c) $125,000.
d) $150,000.
11. When a person signs a contract to buy a house, the buyer normally includes a deposit with the contract. If the buyer then de-
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cides not to buy the house and withdraws the offer, the deposit will usually be:
a) Kept by the seller.
b) Returned to the buyer minus a service fee.
c) Returned to the buyer in full.
d) Applied to the real estate agent`s commission.
12. Mortgage insurance protects the:
a) Buyer in case the mortgage company goes bankrupt.
b) Buyer in case a house is damaged or destroyed by fire.
c) Mortgage company in case a house is damaged or destroyed by fire.
d) Mortgage company in case the buyer defaults on his loan.
13. The best way to find a mortgage loan is to:
a) Contact several local lenders and ask about interest rates and fees.
b) Contact only the institution where you have a checking or savings account.
c) Use the seller`s mortgage lender.
d) Depend on your real estate agent to find the best deal.
14. When purchasing a home, the buyer usually pays for all of the following except:
a) Title insurance.
b) Appraisal.
c) Credit report.
d) Outstanding liens.
15. You want to buy a house and the draperies and appliances that are in it. The listing information does not mention these items. Your best course of action is to:
a) Ask the seller whether you can buy the items separately.
b) Specify in the sales contract that these items are to be included in the sale.
c) Wait until settlement to negotiate these items.
d) Avoid mentioning the items because they automatically become yours at settlement.
16. The law requires which of the following be disclosed to the buyer of a home:
a) Closing costs.
b) The seller`s outstanding mortgage balance.
c) The age of the house.
d) The appraised value of the property.
ANSWERS: 1-d; 2-a; 3-a; 4-c; 5-c; 6-c; 7-d; 8-d; 9-c; 10-b; 11-a; 12-d;
13-a; 14-d; 15-b, 16-a.
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When selling your home, some improvements pay off more than others. ”How to Get Top Dollar for Your Home” lists them. Send $1.25 for each copy to Lew Sichelman, in care of this newspaper, P.O. Box 91428, Cleveland, Ohio, 44101-3428.
