Life Situation: Megan and Sean are looking for their first home in Ontario. They are in their late 20s and have been married for three years. They still have a small amount left to pay towards their student and car loans. They do not have any children but plan to in the near future. Both Megan and Sean have steady stable jobs with good advancement opportunities. They are making housing savings. They do not want to use RRSP Home Buyer's Plan for down payment. Use the financial information given below and information you obtain from the Internet to answer the questions (1 - 9 below). Use the Case Study Answer Template to write up your answers. Financial Information Combined Gross Annual Salary $75,000 After-tax salary $60,000 Monthly Budget Rent 800 Food 400 Entertainment 300 Clothing/Laundry 400 Telephone/Cable/Internet 200 Car loan payment 400 Car expenses 200 Insurance - life, car 220 Insurance - apartment 30 Household (pet-caring, printer) 100 Student loan payment 300 Personal expenses 150 Miscellaneous 150 Savings 1.350 Total 5,000 * Savings - usually each month they contribute $100 to their emergency savings, $300 to their RRSPs and $950 to their house savings Chart: Mortgage payment factors when mortgage rate -400% see Exhibit 7-8 p234 see Exhibit 7-8 p234 see Exhibit 7-8 p234 The factor shows the monthly payment per $1,000 of the mortgage amount Net Worth Assets Liabilities Chequing Account 1,500 Car 6,000** Emergency Savings 6,000 Student Loans 8,000*** Car 14,000 RRSPS 15.000 House Savings 45,000 Total Assests 81,500 Net Worth 67,500 ** They will be finished paying for the car loan in 16 months *** They will be finished paying for the student loans in 28 months Note: For any information that you obtain from a website, state the company's name and the date obtained. The questions build on one another. Information that is given or calculated in one question carries forward to later questions. Question 1 Suppose the couple uses CIBC. Research the current mortgage rates at CIBC and at a mortgage broker of your own choice. Fill in the table on the answer template with your information. You can adjust the table to reflect the information available from your source. You do not have to fill in every cell if the relevant information is not available from your source. Bank: CIBC Date: 6 mos Mortgage Type 1 yr 2 yr 3 yr 4 yr 5 yr 7 yr 10 yr Fixed rate - closed Fixed rate - open Variable - closed Variable - open Variable - capped Broker: Date: 6 mos Mortgage Type 1 yr 2 yr 3 yr 4 yr 5 yr 7 yr 10 yr Fixed rate - closed Variable interest rate Question 6 Use the CIBC mortgage payment calculatorto calculate their mortgage payment (the calculator still works, even if your source of mortgage is not CIBC). Click on "Buy a Home". Then "Skip to Calculator". Purchase price 225,000. Down payment 41,000. Use your recommendations from Q2 for term & interest rate. Pick the monthly payment option and use an amortization of 25 years. Now click on "Calculate". On the right-hand side of the screen, bottom, click on "Payment frequency table". Record your results for the accelerated weekly and the monthly payments in the table. Why do accelerated payments save interests? Question 7 If they make an annual prepayment of $1,000 how much will they save in interest? What is the new amortization? Use the CIBC mortgage payment calculator (base your answer on monthly payments). Question 8 The most common amortization is 25 years. Do you suggest that they choose a shorter one (e.g., 20 years)? Why or why not? Explain. You can do calculations using the CIBC mortgage payment calculator (base your answer on monthly payments and assume no prepayments). Question 9 Given what you have learned in this case study, what would you recommend the couple to do? Explain
