Question

Jake wants to buy a house for 150,000. He is considering applying for a mortgage. The lending value of the house assessed by the banker is 140,000.

(a) Suppose Jake can take out an 80% conventional mortgage, what would be his required down payment?

(b) What would be the down payment if Jake takes out a 90% high-ratio insured mortgage?

(c) Given that Jake chooses (b) and decides to add the mortgage insurance fees (MIF) onto the mortgage loan, what would be his total amount of loan (note that this amount would form the basis for the mortgage calculations)? Use the following chart on MIF.   

LVR	MIF
80.1-85% 85.1-90% 90.1-95%	1.75% 2.00% 2.75%

(d) What would be the difference in total interests paid over the whole mortgage life between the conventional mortgage and the high ratio mortgage? Assume both mortgages have j2 =9% and are amortized over 25 years with bi-weekly payments.

Answer 1

a) Total Value of house= 1,50,000

Mortgage Value = 80% of 1,40,000=1,12,000

Down Payment required= 38,000

b) Mortgage Value= 90% of 1,40,000= 1,26,000

Down Payment required= 24,000

C) 2.75% on 1,26,000= 3465 Insurance fees. Total Value = 1,26,000+3465= 1,29,465

D) Variance will be 59 biweekly

	Conventional Mortgage	High Ratio Mortgage
Loan amount	112000	126000
Tenure in bi-weeks	600	600
Rate of interest	0.38%	0.38%
Weekly Payment	470	528		59
	PMT(Interest,Tenure,-Loan amount,0)	PMT(Interest,Tenure,-Loan amount,0)