Major Purchases
The Major Purchases domain tests consumer decisions involving homes, vehicles, and large durable goods. Questions often compare loan and lease costs, identify closing costs, and test whether a buyer has budgeted for the full cost of ownership.
Mortgages and closing
A fixed-rate mortgage has a constant rate and payment; an adjustable-rate mortgage can change after an initial fixed period. PITI means principal, interest, property taxes, and homeowners insurance. Private mortgage insurance (PMI) commonly applies when the down payment is below 20%, protecting the lender, not the borrower. Points are upfront fees that buy a lower rate. Closing costs include appraisal, title search and insurance, recording fees, and lender charges; they are separate from the down payment. Amortization front-loads interest, so early payments build little equity.
Autos and leases
A car loan finances ownership; a lease pays for use during a set term. Lease payments depend on cap cost, residual value, money factor, and term. Leases often limit mileage and charge for excess wear. A longer loan lowers the monthly payment but increases total interest and can leave negative equity. Gap insurance covers the difference between loan balance and actual cash value after a total loss. Depreciation is usually steepest in the first years.
Worked example
A $30,000 car with 20% down requires $6,000 cash and finances $24,000 for 60 months at 6% APR, or 0.5% monthly. Using the amortization formula, the payment is about $464. Total payments are $27,840, so interest is $3,840. Including the down payment, the buyer pays about $33,840. A 72-month loan at the same rate lowers the payment but raises total interest and prolongs negative equity. The exam may ask which cost is missing: taxes, registration, insurance, maintenance, or gap coverage.
Traps
Do not treat a lease as ownership or compare only monthly payments. A low APR can hide a long term or a high price. Closing costs are not optional lender fees alone. PMI is not homeowners insurance. Skipping an inspection or title check can transfer hidden risk to the buyer.