Mike is an accountant making $75,000 per year. He expects his income to grow at 1% per year. He does not have a pension plan at work.

Five years from now he would like to buy a house or condo. He expects that, by the time he buys, the interest rate on a 30-year fixed rate mortgage with zero points and with a 20% down- payment will be at the historical average of 6%. He does not want his mortgage to be more than 25% of his monthly income. If this is the case, what is the house he can afford to buy 5 years from now (and assuming that there is no inflation and all numbers are already incorporating taxes)? Because he needs money for the down-payment, how much do he have to set aside today to have the money for the down-payment 5 years from now? Assume he can earn 5% per year on the money he sets aside now for the down-payment.