Question

In: Accounting

Cecilia and Matt finally find a house, which they really love. The asking price is $250,000...

Cecilia and Matt finally find a house, which they really love. The asking price is $250,000 and last year's property tax bill was $2,340. They offer to purchase the house for $240,000, providing that they can arrange adequate financing. They have saved $45,000 for a down payment. Matt's gross annual salary is $42,000 while Cecilia's part-time salary is $18,000 annually. They have $25,000 in mutual funds, which they are willing to liquidate so that they have their required down payment. Their current debts include a car loan, which costs $360 monthly and an RRSP loan, which costs $340 a month. Matt and Cecilia do not like interest rate volatility and are considering a five-year mortgage with a fixed rate of 7.15% to be amortized over 25 years. Also, they have the option of making a repayment of $15,000 at the end of year 5 and at the end of year 10.

a) Will Cecilia and Matt be eligible for a conventional mortgage if their purchase offer is accepted by the vendor?

b) Assuming that they have the required down payment, will they qualify for a mortgage loan?

c) What is the monthly payment if they qualify for a mortgage loan?

d) How much interest will they pay over 25 years, assuming that interest rates remain the same and they make no repayments?

e) Compare the difference in total interest, and the effect on the time to repay the mortgage, if Cecilia and Matt make a repayment of $15,000 after five years?

f) How long will they take to repay the mortgage if they make a repayment of $15,000 at the end of year 5 and another repayment of $15,000 at the end of year 10?

GDS ratio and TDS ratio not more than 30% and 40% respectively, Down payment of 25%

Solutions

Expert Solution

a)

Truly, Cecilia and Matt are qualified for a customary home loan credit, The state of a downpayment of $ 60,000 is to be guaranteed.

Put something aside for Downpayment = $ 45,000

Common Funds = $ 25,000 (taking into account that it sold in the fixed given sum

Hence complete assets = $ 70,000 ie. more than the min $ 60,000

b)

Matt Monthly compensation = $ 42,000/12 = $ 3500

Cecilia Monthly compensation = $ 18,000/12 = $ 1500

All out fixed inflow every month = $ 5,000

All out Monthly obligation = $ 700

TDS = 40% * 5000 = $ 2000

Subsequent to deducting the month to month obligation we have 2000-700 = $ 1300

Considering Mortgage sum = $ 240,000 - $ 70,000 = $ 170,000; Tenor 25 Years, Rate = 7.15%

Regularly scheduled installment should be made is $1,217.84 which is underneath $1300 limit.

Consequently they qualify contract credit.

c)

In the above ques, we derived that the regularly scheduled installment made is $ 1,217.84

d)

Intrigue paid = 7.424%


Related Solutions

You are looking at buying a home with an asking price of $250,000. Since the market...
You are looking at buying a home with an asking price of $250,000. Since the market is hot, you plan to put in an offer for the full asking price. You also plan to put a $40,000 down payment and finance the remainder. Your bank is offering you a 30-year loan at 4.25% APR (compounded monthly). Suppose you pay the bank $1,580 each month rather than making the required payment, calculate the number of months it will take to pay...
You are looking at buying a home with an asking price of $250,000. Since the market...
You are looking at buying a home with an asking price of $250,000. Since the market is hot, you plan to put in an offer for the full asking price. You also plan to put a $40,000 down payment and finance the remainder. Your bank is offering you a 30-year loan at 4.25% APR (compounded monthly). A) Assume your first payment is made one month from today, calculate your monthly loan payment and calculate the total amount paid to the...
Smith just bought a house for $250,000. Earthquake insurance, which would pay $250,000 in the event...
Smith just bought a house for $250,000. Earthquake insurance, which would pay $250,000 in the event of a major earthquake, is available for $25,000. Smith estimates that the probability of a major earthquake in the coming year is 10 percent, and that in the event of such a quake, the property would be worth nothing. The utility (U) that Smith gets from income (I) is given as follows: U(I) = I0.5. (Smith’s utility is the square root of her income....
3. Amortize a $250,000 (Sale Price) house on a 30 year loan at 4.0% annual interest...
3. Amortize a $250,000 (Sale Price) house on a 30 year loan at 4.0% annual interest rate Amortize a $250,000 (Sale Price) house on a 15 year loan at 3.0% annual interest rate (7) What will be the total cost of the 30 year loan? (Total of all Interest & Principle ) (8) What will be the total cost of the 15 year loan? (Total of all Interest & Principle ) (9) At the end of 4 years, how much...
1.) Find a house: House Price is ($350,000) 2.) Use interest rate of: 6% compounded monthly...
1.) Find a house: House Price is ($350,000) 2.) Use interest rate of: 6% compounded monthly for a 30 year loan and 5.5% compounded monthly for a 15 year loan. 3.) Determine how much a monthly principal and interest payment on your house would be if you financed it: a. for 30 years b. for 15 years c. for 30 years with 20% down d. for 15 years with 10% down 4.) How much would you pay for the home...
You are considering investing in a real estate project which has an asking price of $30,000....
You are considering investing in a real estate project which has an asking price of $30,000. The project is expected to generate annual cash flows to you of: $4,500 in year 1, $5,000 in years 2-5, $8,000 in year 6 and $19,000 in year 7. Your required rate of return for projects with similar risk is 12% annually.          What is the investment value of this property?          What is the NPV of this investment opportunity?          What is the...
A real estate association for a specific city puts the average price at which a house...
A real estate association for a specific city puts the average price at which a house was sold in a given year at $ 259 comma 109$259,109. Assume that the standard deviation of the house prices is ​$116 comma 088116,088. Suppose a researcher did a survey of a random selection of 3434 house sale prices in this year and obtained an average house price of $ 286 comma 489$286,489. ​What's the chance that such a survey would have resulted in...
given the demand function, Q=20-2p, find the price range for which a) demand is elastic b)...
given the demand function, Q=20-2p, find the price range for which a) demand is elastic b) demand is inelastic c) demand is unit elastic d) if the firm increases the price to £7, is the total revenue increasing or reducing?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT