Final answer:
The subject involves the financial elements of home ownership, such as mortgage, down payment, total loan costs over time, and the concept of equity in the context of rising housing prices.
Step-by-step explanation:
The question you've asked pertains to the purchase of a house and involves understanding the financial aspects of home ownership and credit. When buying a house, the cost is not just the initial purchase price; you must consider the mortgage, property taxes, maintenance expenses, and insurance, as well as utilities like power and water bills. Additionally, depending on the housing market, resale can either lead to profits or losses.
Understanding Home Ownership Costs
For instance, let's consider the example of Joanna, who can afford $12,000 a year on a house loan with a 4.2% annual interest rate over 30 years. Joanna's decision involves calculations that would determine her budget, down payment, monthly payment, and the total amount she will end up paying after the loan term. Down payments are also a key part of purchasing a house; typically, 20% of the home’s purchase price is paid upfront, with the remainder borrowed from a bank or lender.
Housing prices generally rise over time, offering an average financial return. For example, Freda bought her house for $150,000 in cash, and it could now sell for $250,000. By contrast, Ben bought his house for $100,000, made a down payment of 20%, and took out a loan for the rest. Since then, the value of the house has increased to $160,000 and he has paid off $20,000 of the bank loan. This indicates that over time, a properly maintained home can increase in equity.