Kim and Michael have been married for 4 years and purchased their first home right after they were married. They purchased it for $400,000 and had $100,000 to put towards the down payment. They chose a 5-year fixed rate term at a rate of 3.5% and amortized it over 25 years. They have been making monthly payments of $1497.81. Their home is currently worth $475,000. They have run into some financial difficulty lately and have credit card debts totalling $30,000 with monthly minimum payments of $750. Their mortgage is coming due in 12-months and they are considering consolidating their debts into the mortgage. The bank has offered them a 5-year fixed rate term mortgage at 3.0%.

a) If they choose this option at the end of the term, how much money will they save in debt payments each month? (6 marks)

b) What two other recommendations would you give Kim and Michael when they complete the debt consolidation? Explain the benefits and drawbacks of each. (4 marks)