"You bump into Cathy, an old friend from Villa Maria High School. The two of you had once been inseparable, but have gone your separate ways since entering CEGEP. Cathy studied music and history at McGill. You chose a different path and have taken FINA200 as one of your electives at Concordia University. When she found out you were taking a personal finance course, she said, "Oh, I have a question for you...you should be able to help me". My boyfriend and I want to buy a house. Actually, I'm a bit scared - I didn't sleep at all last night just thinking about it, but he says it's a great time to buy - rates are low, but likely to head higher, so we should buy now. Combined, we've got $27,000 for a down payment. The lady at Peter's bank said that wasn't enough and we'd have to get our mortgage insured. But who insures mortgages? Would $27,000 be enough for us to go ahead? Are there any other costs of buying a home that we don't know about? We're looking at a cute little house right now, but it's listed at $250,000. $250,000 seems like so much money to me! Combined, we earn about $80,000 a year. I'm a self employed musician and Peter is a carpenter. Can we afford it? I'm 27 and started contributing to an RRSP about 3 years ago - I've saved about $5,000 so far. Peter has about $50,000 because he's a bit older. I'm really conservative when it comes to budgeting. I have a small car loan - I pay about $300 a month and I've only got a year to go. But come to think of it, I was pretty silly last year. I borrowed $6,000 to have a swimming pool installed in my grandmother's back yard. We rent the upstairs apartment for $450 a month right now and I didn't mind paying for the pool because our rent is so low. I still have 12 months to go on the loan - it was originally for 2 years. Other pertinent information you gleaned from your conversation with Cathy: The couple is considering a 5-year term, 25-year amortization, 6% fixed rate mortgage. The monthly mortgage rate would be 0.4939%. They would make monthly payments. Property taxes would amount to approximately $3,500 a year. Heating would cost $2,000 a year. The interest rate on the consumer loan to build the pool was 9%, compounded monthly, to be paid off over 2 years. The same rate applies to the car loan. PLEASE SHOW ALL WORK AND QUOTE ALL SOURCES FOR FULL MARKS Question 1 (40 marks - 10 marks each) a) Where would the couple go to insure their mortgage? How much would it cost? (Ignore the fact that Cathy is self-employed and assume the couple could put up a 10% down payment.) How could they pay for the mortgage insurance? b) How much would the couple have to pay in land transfer tax if they bought a home? This tax is referred to as the "welcome" tax in Quebec. Is this the only expense they would have when buying a house? c) Apply the GDS and TDS ratios to see if the couple would qualify for a home. Assume they could meet the minimum 10% down payment. d) How could the couple raise a larger down payment? Please explain and quote all sources.
Paper#11854 | Written in 18-Jul-2015Price : $25