Question
Jasper earns $80,000 per annum and Melissa earns $65,000 per annum. They have an inheritance of $80,000 (currently in a term deposit earning 5% per
Jasper earns $80,000 per annum and Melissa earns $65,000 per annum. They have an inheritance of $80,000 (currently in a term deposit earning 5% per annum) which they plan to use as their deposit on a new home. In addition, they have $10,000 in a cash-management trust earning 4% per annum.
Their general living expenses are $35,000 per annum. They pay $8,000 per annum in school fees for their son. They have credit-card payments of around $3,500 per annum, and they take a short holiday plus some weekend trips which they believe cost $10,000 per annum. In addition, they pay $22,000 per annum in rent.
Melissa and Jasper have a reasonable level of personal and private medical insurance and have full contents insurance of their furniture. Their bank will lend them up to 85% of the value of a home, but their mortgage payments cannot be more than 30% of their gross income. The interest rate on the mortgage is 6.75% per annum and the term would be 25 years.
They live in Northern Queensland. Property values are expected to increase a little more than inflation over the next few years. They have found two houses they like. Their first preference is a house valued at $650,000. The other is valued at $720,000. As their financial planner, you have completed their cash flow analysis. Your summary notes show that their combined income is $114,763, total outgoings is $78,500 and net after tax saving capacity is $36,263.
REQUIRED:
- What factors should they consider if they want to buy now? (5 Marks).
- Which house could they afford? (10 Marks).
- What would be their mortgage payments if they decide to buy the cheaper house? (10 Marks).
- Having examined their current situation, what are the issues they need to take into consideration in making the decision. (5 Marks).
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