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Question 2 (20 marks) Edward and Christine want t...




Question 2 (20 marks) Edward and Christine want to buy a house costing $360,000 and which has annual property taxes of $3,900. They believe that they can sell their townhouse for $260,000 and will have a down payment of $110,000. They have two children, ages 5 and 7. Their child care cost is about $650 monthly. They have about $15,000 in credit cards on which the monthly payment is 3 percent of the outstanding balance. They also have a car loan costing $500 per month. Each earns a gross annual salary of $50,000. They have no RRSPs but Edward?s company pension plan is worth about $30,000. Required: (a) What will the monthly mortgage payment be if they take out a 3.99 percent, five-year Canadian mortgage with a twenty-five year amortization term? (4 marks) (b) If they have to meet the standard bank lending tests, will they qualify for the mortgage? (4 marks) ?? (c) If they do qualify for the mortgage, what will be the balance after three years? (2 marks) (d) They believe that they can save $250 per month which they will pay, in addition to the amount computed in part (a), towards their mortgage. How long will it take them to pay off their mortgage? (3 marks) (e) Assume that at the end of two years, the interest rate for a three-year mortgage is 2.99 percent. Edward and Christine can switch to this rate for the remaining three years on the initial five-year mortgage, providing that they pay a three-month interest penalty which will be added to the principal. They will also continue to make the same monthly payment, as computed in part (a), for the three remaining years of the initial mortgage. Should they make the switch? Why or why not? (7 marks)


Paper#10117 | Written in 18-Jul-2015

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