QUESTION

John and Ella are considering whether or not to buy a particular property valued at $1,200,000. They have $450,000 of their own funds to commit towards the purchase and they expect to incur an additional $75,000 in fees and stamp duty on the purchase itself. They are able to borrow at an interest rate of 4.8% per annum with interest compounded monthly.

Loan repayments would be monthly with the first payment due at the end of the first month after purchasing the property. The term of the home loan is 25 years. They both work full-time earning a combined after-tax salary of $14,000 per month

A. How much is the monthly mortgage payment John and Ella will be required to pay for their loan?

$

B. John and Ella face mortgage stress at current interest rates?

Loan affordability ratio: %(2 decimal places)

John and Ella (will or will not)experience mortgage stress

C. After 1 year, the bank informs John and Ella that $807491.44is still owing on their loan. How much in totalhave John and Ella paid in mortgage payments during the first year?

$

D. How much of the amount repaid in the first year has gone towards reducing the principal amount borrowed?

$

E. How much interest have John and Ella paid in year 1?

$

F. If the bank now increases interest rates from 4.8% to 6.0%, what will John and Ella's new monthly mortgage repayments be?

$

G. How will this new monthly mortgage repayment affect their loan affordability ratio?That is, will they befacing mortgage stress?

Loan affordability ratio: %(2 decimal places)

John and Ella (will or will not) experience mortgage stress.