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. a) Using the ratios based on textbook thresholds, how much mortgage can they qualify for assuming monthly payments if they select a 3 year fixed closed mortgage? (8 marks)

b) Identify 2 other aspects should they consider that are not reflected in the ratios. (4 marks)

c) What type of mortgage would you recommend for them based on the options provided and why? (7 marks)