Lam and Cara,work for the Town of Bracebridge, with anannualgrosssalary of $40,000each. The expectedannualsalaryincreaseis2.5%.Below is a list of their assets and liabilities.

Lam and Cara want to purchase a new house costing $320,000. They qualify for a3-yearfixed term mortgageat 5.75%with a 20-year amortization period.Property taxes on the new house is $3,600 per year.

The market price for their current house is $247,900, with legal fees, real estateand land transfer fees totaling $7,500. They hope the net proceeds from the sale of the current house,will give them at least$80,000,which would beusedas a down payment for the new house.

If the net proceedis less than $80,000,they will use their cash savingsto ensure that the downpayment is $80,000.

Casestudyinstructionsand questions:

1.WillLam andCarahavethe $80,000 down payment needed from the saleof the current residence?

2.What is the monthlymortgagepaymenton the newhouse, assuming they have the $80,000 downpayment? Will they qualify for the new mortgage loan?(Hint:include GDS and TDS calculation)

3.SupposeLam and Cara have a provision in their new mortgage agreement, that allows amortgagerenewalin three years atcurrent rate,and thenatfive years,by making a payment of $20,000 three years from today and $25,000 eight years from today.If the monthly payment remains the same,how longwill it take them to pay off the new mortgage?

4.Lam and Cara is consideringanother alternative. Instead of buying anew house,theyshouldgetahome equity line of credit for $55,000,which has 4% interestand a minimummonthly paymentthat is twice the interest payment. The $55,000 will be use topurchase acondominiumthat will have a conventional mortgage. Would they be qualifiedfor the home equity lineof credit? What wouldbethe maximum purchase price for the condominium (ignore legaland real estate fees)?