Activity 2.1 : Dream Home

Learning Objectives:

1. Calculate key credit ratios, such as total debt service ratio and gross debt service ratio.
2. Illustrate how the responsible use of credit cards, lines of credit, personal loans, and mortgages can be used to build a credit rating.

Activities:

Step 1 Review

In a group of two, please review the information given below.

Step 2 Practice

Using the two formulas presented in your textbook, determine total debt service ratio (TDSR) and gross debt service ratio (GDSR) for Alexa and Maxwell.

Alexa and Maxwell are looking to buy their first dream home. They have a vehicle lease that costs $350 per month and a credit card with a credit limit of $10,000 that they pay off every month. They have about 50,000 in their TFSA accounts and $40,000 each in their RRSP accounts for down payment. Alexa and Maxwell are both salaried employees, who make $70,000 and $30,000 before taxes (gross), respectively. They both work in suburbs of Calgary and are looking to start their family now.

Step 3 Research

Aside from lines of credit and personal loans, credit cards are another form of debt. If used responsibility (e.g., payingoutstanding balances on time), the use of credit cards can be a form of cost-free short-term financing.

However, can paying outstanding balances on time be considered the norm for use of credit cards today? Searchonline for information and news about the credit card industry, the growth in credit card use, and consumer creditpatterns.

In a class discussion, share your findings.

Step 4 Calculate

Most people in their life will assume a mortgage for their home. Mortgages are offered in many forms. Find amortgage type that suits their needs if they were to consider buying a home today in Calgary.

Follow these steps to acquiring a mortgage:

1. Locate a desired home anywhere on one of the property listings.
2. Determine the total house cost (including fees) and maximum affordable monthly mortgage payments (see Step 2above).
3. Find a mortgage by exploring mortgage information given in the textbook.
4. Consider:
5. Mortgage terms
6. Interest rates
7. Features
8. Costs and fees
9. Payment schedules

b. Consider using an online mortgage calculator.

Step 5 Share

If there is time during class, complete your investigation and share your dream home and mortgage details.

Did you get the best deal compared to your fellow classmates?