Indicate Your Assumptions and Calculations and Comment on Whether Buying

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Examlex · Accepted Answer

The Answer is Many assumptions are possible.Look for a logical and accurate assessment of the numbers.
Assumptions:
The $40 000 savings needs to cover the down payment and closing costs,so they have 10 percent to put down $30 000.
The remaining $10 000 will be sufficient for closing and moving costs.
CMHC insurance will be $5,400 and they will add that to the mortgage amount
The mortgage will be $275 400,amortized over 25 years,4% interest,compounded semi-annually
Therefore monthly mortgage payment would be $1449
GDSR: 30%1449 + 220 + 100 + (350/2)/8000 = 24.3% so they easily qualify
TDSR: 40%As long as their consumer debt is less than $1,256 monthly payment,they qualify on this too.
Renting is $1500 per month
Buying will be $1944 per month (not including repairs and maintenance inside)
Estimated value in five years
If they rent,they will have $40 000 plus 444 extra a month,so if invested at 4% return,they would have approximately $78 000(PV -40000,PMT-444,I/Y 4,N 60,CPT FV)
If they bought and the condo increased two percent per year,they equity they would have in five years is the equity of the condo minus the remaining mortgage (minus selling commission)
approx $330,000 condo value,minus $15 000 selling commission,minus approx $240 000 mortgage.Equity if they sold the condo: $75 000
So,as long as they want to buy,and are prepared to spend more on accommodation than they have been,and they plan to stay for five or more years,they should go ahead and buy.

Indicate Your Assumptions and Calculations and Comment on Whether Buying

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Indicate Your Assumptions and Calculations and Comment on Whether Buying

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Correct Answer:
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