Ashley and Martin have saved up $150,000 for a down payment on their first home. In addition, they each have $15,000 in their RRSPs. They have no other investments. The property taxes in the area in which they are searching for a home are estimated to be $7,200 a year. Ashley works as a legal secretary for a small law firm and earns $65,000 gross per annum. She has employer provided life insurance and extended health care only. Martin works in construction and earns $80,000 gross per annum. He has no employer provided benefits. His work is seasonal and is never guaranteed. The only debt they have is a car loan with a balance of $15,000 and monthly payments of $450. Their financial institution has offered them the following options with a 25 year amortization period: Term Rate (APR) 5 year variable closed 3.45% 5 year fixed closed 3.25% 3 year fixed closed 2.95% 1 year variable open 2.65% Ignore the stress test rules for this question.

1. a) how much mortgage can they qualify for assuming monthly payments if they select a 3 year fixed closed mortgage?

• estimate the amount of mortgage that you can get based on your expected gross income , the current GDS ratio (30%) or TDS ratio (40%) and the current mortgage rate
• this amount of mortgage is approximately equal to 75% of the value of the house

b) Identify 2 other aspects should they consider that are not reflected in the ratios.

c) What type of mortgage would you recommend for them based on the options provided and why