Case Study Assignment 1

Navjot and Steven are wanting to purchase their first home.

They have agreed that a 2-bedroom condo would be ideal. In their city, the current market value for this type of condo is $650,000. They are comfortable using an assumption of a mortgage with a 25 year amortization, 5 year fixed rate at 5% interest.

Based on their extensive research, they estimate that their housing costs will be:

• $200 for heat
• $200 for property taxes
• $500 for condo fees
• $300 for maintenance costs

Navjot has $50,000 in her RRSP and $5,000 in a TFSA. Steven has $5,000 in an RRSP.

You have put together a quick preliminary cash flow statement for them.

Personal Cash Flow Statement for Navjot and Steven

Income
Gross Income (Navjot)	$7,500
Gross Income (Steven)	$5,000
Total Income	$12,500
Expenses
Rent	$1,000
Internet & Phones	$200
Groceries	$500
Clothing	$250
Utilities	$200
Recreation	$1,000
Student Loans	$1,000
Car Leases	$800
Insurance	$250
Car Fuel and Maintenance	$250
Total Expenses	$5,450

They have come to you for your help in figuring out:

1. What is the maximum monthly mortgage payment they could afford based on their TDSR?
2. What is the maximum mortgage they would qualify for based on that payment?
3. What is the maximum value of home they qualify for? Assuming they are wanting a conventional mortgage, what would the down payment be?
4. Can they afford the condo? If not, what could they consider doing?
5. If they decide to move ahead and find a home for the maximum they qualify in one year from now, how much do they need to save for the down payment?