Sally buys a house for $400,000 and obtains a 90% mortgage. Obtains a rate of 3.75% on a 30 year fixed rate mortgage. Due to the high leverage, she must pay 0.50% premium on the rate and Up front mortgage Insurance Premium 0.50% on the mortgage balance. The annual RE Taxes is $7,500 and Insurance is $1,500. She also has other monthly obligations as follows: Credit Cards $1,000, Student Loans $750, and Car Loan $400 The bank uses a Front Ratio of 28.00%, and a Back Ratio of 43% What is the annual income required to under these circumstances.

Instead of the above scenario, Sally decided to get a floating rate mortgage with interest only feature for the first five years and puts 20% down. She gets an introductory rate for a year at 1.25%. The loan has a spread of 3% over 1 year US Treasuries and comes with an annual cap of 2% and lifetime cap of 7.5%. The index in for adjustments in years 2,3,4,5, are 2.5%, 3.5%, 4.25% and 5.5%. How much interest will she pay over the first five years.