Question

Ervin and Freda are looking for a home; their combined income total 77000. The couole were able to negotiate a rate of 5.25% for a 5 year fixed term on a 25 year amortization. The taxes are estimated at 1800, and heating cost are 1200; their personal debt consumption is 725 per month. the banks guideline is 40% for TDSR and 32% for GDSR. using the TDSR guideline, determine the maximun mortgage they qualify for.

Answer 1

Gross monthly income = (77,000 / 12) - 725 - 1800 - 1200 = 2,691.667

TDSR is 40%, meaning that the monthly mortgage payment cannot be more than 40% of the gross monthly income

Maximum monthly mortgage payment = 2,691.667 x 0.4 = 1,076.667

Present value of loan amount PV = P x [1 - (1 + r/12)]^{-(12 x n)} / (r/12)

where P is the monthly payment, r is the annual rate and n is the number of years

PV = 1,076.667 x [1 - (1 + 0.0525/12)^{-(12 x 25)}] / (0.0525/12) = 182,352.64

So the maximum mortgage they qualify for is 182,352.64.