Mini-Case Question

Like every Canadian couple, Amira and Owen carry quite a lot of debt.

• Three years ago, Amira purchased a Subaru Outback costing $34,750 before sales tax of 15%, with a $5,000 down payment, 7 year term and interest rate of 6%, compounded monthly. Payments are monthly.
• The couple has a line of credit to cover unexpected expenses. The maximum possible withdrawal is $15,000. Terms include a monthly principal repayment of 2% of the balance outstanding, and an interest rate of 7%, compounded monthly, on any outstanding balance.
• The couples mortgage is coming up for renewal. They borrowed $289,750 five years ago at a rate of 2.59%, compounded semi-annually. Their financial institution has offered them a renewal rate of 1.69%, compounded semi-annually, for a new 5-year term. Their original amortization period was 25 years. They would renew their mortgage for the remaining 20 year amortization, but instead of bi-weekly payments, they would opt for monthly payments.
• Amira and Owen pay, on average, $800 towards their credit cards every month, and generally carry a balance of $2,000 from month to month. Combined, their total credit card limit is $10,000.

Question 1: Calculate Amiras monthly car loan payment. (Show the monthly car loan payment calculation)

Question 2: The couple drew down $5,000 on their line of credit (LOC) 6 months ago and have paid the required 2% principal plus interest every month for the last 6 months. What would be their line of credit payment this upcoming month? (Show the LOC calculation)

Question 3: What will be the couples new monthly mortgage payment if they accept the terms offered by their financial institution? (Show mortgage balance calculation and the new monthly payment calculation.)

Question 4: Calculate the couple's total debt service (TDS) ratio. does it fall within guidelines?

Annual heating and property taxes are $1,800 and $3,250, respectively. Refer to Case 1 for gross income information: Use Amiras gross salary and bonuses only. Use Owens net business income and ignore the CERB.

Note: Their financial institution factors in 5% of the credit card maximum or the average monthly payment, whichever is higher, and 3% of the maximum possible withdrawal on their line of credit.

Question 5: The couples credit card charges an annual percentage rate (APR) of 18%, compounded daily, and requires a 5% minimum payment.

a) How long would it take them to pay off their $2,000 balance if they shelve their cards, never use them again, and continue with the ($2,000 x 0.05) = $100 minimum monthly payment required now?

b) How much total interest would they have paid?