The Simpsons are first time home buyers. They have negotiated a fixed rate of 3%, compounded semi-annually, on a $325,000 mortgage loan to be amortized over 25 years. The Bank of Canada posted 5 year rate is currently 5.34%. The Simpsons expect that monthly municipal taxes and heating costs will amount to $300 and $150, respectively. Their only other debt is a $10,000 line of credit which they have yet to use. The couples gross combined income is $115,000.

They will make monthly mortgage payments. Note that mortgage lenders assume a minimum (usually 3%) payment on a credit card balance and line of credit balance based on full usage.

PART A:

Keeping in mind the mortgage stress test for new home buyers, what will be the couples TDS ratio? Will they qualify for the mortgage loan?

PART B:

The couple will make a $50,000 down payment on the loan. How much additional interest would they pay over the life of the loan if they add the CMHC mortgage default insurance cost to their mortgage?

PART C:

If the couple opts for an accelerated bi-weekly payment (i.e. a payment every two weeks that equals of the regular monthly payment), what would be their new amortization period?

Please answer all three parts showing all the work.

Formula sheet provided + info if needed:

TABLE A 2018 Combined Federal and Quebec Personal Income Tax Brackets and Tax Rates 2018 Taxable Income 2018 Taxable Income 2018 Tax Rates 2018 Tax Rates first $43,055 over $93,208 up to $104,765 27.53% 45.71% over $104,765 up to $144,489 over $43,055 up to $46,605 32.53% 47,46% over $46,605 up to $86,105 over $144,489 up to $205,842 49.97% 37.12% over $86,105 up to $93,208 41.12% over $205,842 53.31% TABLE B Tax-Free Savings Account (TFSA) Annual Limits Annual Limit Year Annual Limit Year $5,500 Year started 2009 $5,000 2014 $5,000 $10,000 2010 2015 $5,000 $5,500 2011 2016 $5,000 $5,500 2012 2017 $5,500 $5,500 2018 2013 TABLE C Time Value of Money Formulas Simple Interest I PXRX T FV = PV(1+i) Future (FV) of a single sum (1+i-1 Future Value of an Annuity or series of payments FV = PMT i PV FV/(1+i Present Value (PV) of a single sum | 1-(1+i)" PV = PMT or i Present Value of an Annuity or series of payments PV = PMT1-[1/(1+i)1 Time Value FV= Future value PV Present value PMT PMT or regular annuity When compounding is more than once a year, i,= Annual interest rate Number of time periods FV= PV (1 + i/m)nm n Number of compounding periods per year m TABLE A 2018 Combined Federal and Quebec Personal Income Tax Brackets and Tax Rates 2018 Taxable Income 2018 Taxable Income 2018 Tax Rates 2018 Tax Rates first $43,055 over $93,208 up to $104,765 27.53% 45.71% over $104,765 up to $144,489 over $43,055 up to $46,605 32.53% 47,46% over $46,605 up to $86,105 over $144,489 up to $205,842 49.97% 37.12% over $86,105 up to $93,208 41.12% over $205,842 53.31% TABLE B Tax-Free Savings Account (TFSA) Annual Limits Annual Limit Year Annual Limit Year $5,500 Year started 2009 $5,000 2014 $5,000 $10,000 2010 2015 $5,000 $5,500 2011 2016 $5,000 $5,500 2012 2017 $5,500 $5,500 2018 2013 TABLE C Time Value of Money Formulas Simple Interest I PXRX T FV = PV(1+i) Future (FV) of a single sum (1+i-1 Future Value of an Annuity or series of payments FV = PMT i PV FV/(1+i Present Value (PV) of a single sum | 1-(1+i)" PV = PMT or i Present Value of an Annuity or series of payments PV = PMT1-[1/(1+i)1 Time Value FV= Future value PV Present value PMT PMT or regular annuity When compounding is more than once a year, i,= Annual interest rate Number of time periods FV= PV (1 + i/m)nm n Number of compounding periods per year m