1 a) What size of mortgage do Claudette and Arash require?
1 b) If the mortgage broker secures them with a ten-year mortgage at a fixed rate, what would be the size of their monthly payment?
1 c) Is it advisable for the lender to qualify the couple for their mortgage based on their expenses and income?
Final answer: The couple requires a mortgage size of $160,000. If the mortgage broker secures them with a ten-year mortgage with a fixed rate of 2.44% compounded semi-annually for a term of five years, their monthly payment would be approximately $1,542.47. It is advisable for the lender to qualify the couple for their mortgage as their total monthly expenses are less than their monthly income.
Mortgage Sizing and Monthly Payment Calculation
Mortgage Size Calculation:
To calculate the mortgage size, deduct the down payment from the total condo cost. The down payment is 20% of $200,000, which is $40,000. Therefore, the mortgage size is $200,000 - $40,000 = $160,000.
Monthly Payment Calculation:
Using the formula for a fixed-rate mortgage:
M = P * (r * (1 + r)^n) / ((1 + r)^n - 1)
Where:
M = monthly payment
P = principal (mortgage size)
r = monthly interest rate (2.44% / 12)
n = total number of payments (10 years * 12 months)
Plugging in the values:
M = $160,000 * (0.0244/12 * (1 + 0.0244/12)^(10*12)) / ((1 + 0.0244/12)^(10*12) - 1)
Monthly payment ≈ $1,542.47.
Qualification Advice:
Comparing their total monthly expenses ($2,037.47) with their combined gross monthly income ($5,500), it is advisable for the lender to qualify Claudette and Arash for their mortgage. Their monthly expenses are less than their income, indicating financial stability.
For further details on mortgage size calculation and monthly payment, refer to reliable sources like the provided link.