Daniel Richards and his wife Amy have just moved to Canada from Australia and want to buy a house that costs $1 million. They have a down payment of $200,000 plus enough to pay the other costs like legal fees. Canadas newest bank, the Bank of Northern Ontario (BNO), offers a fixed rate of 3.6% with a 25-year amortization and a 5-year term, but they must qualify for the mortgage under the new rules just brought in by the Prince of Northern Ontario, which has just declared independence from Canada. The new rule is to prevent borrowers getting in too deep: they must meet a standard GDS of 30% and TDS of 35% and qualify at a mortgage rate that is 2.4 percentage points p.a. higher than they are actually paying. The estimated utilities expense (electricity, water, waste management) is $300 per month and gas for heating is approximately $190 per month. The property tax for the next year is $350 per month. They estimate they would need no more than $1,200 over the next year for maintenance. Amys new job in Canada will pay her $130,000 p.a. as a consulting neurologist, while Daniel will be working as a teacher for $60,000 p.a. They are still repaying Amys student loans from her degree in the UK at a rate of $300 per month. They had to buy a car when they came to Canada and the car loan payments are $400 per month.

a. Calculate the mortgage payment that is used for the mortgage approval and round to nearest dollar:

$4,808

$5,392

$5,120

$4,037

$5,072

b. Assume the mortgage payment in part a is $5,000 per month. Calculate the Gross Debt Service Ratio (GDS):

.32

.33

.35

.36

.37

c. Again, assume the mortgage payment in part a is $5,000 per month. Calculate the Total Debt Service Ratio (TDS):

.34

.36

.37

.39

.41