Question 2 options:

Five years ago, the Jones were looking at buying a new house in Richmond.

(a) Their bank used the 32% rule: no more than 32% of their gross monthly income can go towards paying their mortgage, property taxes and heating costs. If their gross monthly income was $12,500, property taxes were $3,600 per year and heating costs$125 per month, what is the maximum monthly mortgage payment they could afford?

(b) The Jones ended up purchasing a house for $830,000. They made a 20% down payment and amortized the balance over 25 years. The interest rate was 3.8% compounded semi-annually, for a five-year term.Find the size of their monthly payment. The bank rounds the payment up to the next dollar.

(c) How much of the 60^th payment was interest?

(d) How much did they still owe after making five years of payments?

(e) Today, the interest rate has risen to j₂ = 4.8%. To help pay the higher payment, the Jones decide to increase their mortgage and use the money to build a rental suite in their basement. With this rental income, they feel that they can comfortably afford a mortgage payment of $4,000 per month. By increasing their mortgage, how much money would they receive to pay for the renovation if they still want to pay off the mortgage in 20 years