Gulf NBDs top finance executives, as part of giving back to the UAE Community, has decided to give a special rate for all graduates who are looking forward to buy their first home. You are ready to buy a house and you have $27,000 for a down payment and closing costs. The closing costs are made up of 1.4% of the loan amount, and an additional $2000 for administrative and settlement fees. You have now served for ten years in your current position as an account manager with the Department of Finance in Bur Dubai, and your salary has been increased to $150,000 per annum. Since you have a good history in maintaining your bank accounts, Gulf NBD is willing to allow your monthly mortgage payment to be equal to 50% of your monthly income. The interest rate on the loan is 5.5% per year. Since it is your first home, you are planning to repay the loan over 25 years.

(a) Based on the above information, what is the maximum Gulf NBD can loan you?

(b) How much can you offer for the house?

(c) If Barclays Finance, a fierce competitor of Gulf NBD, is offering you a rate of 5.0% p.a. but payable over 20 years only, which bank would you choose, assuming they can both give you the exact same loan amount? Explain your answer.

(d) In the UAE, what is the percentage of down payment you need to make if you buy a house, assuming you are a

(i) UAE citizen?

(ii) An expatriate?