The document discusses calculating the maximum affordable mortgage amount based on income. It provides an example of a woman calculating how much she can afford to spend on a condo based on her annual income of $44,000 and monthly expenses. Using the gross debt service ratio formula of spending no more than 32% of gross income on housing, it is determined she can afford a condo priced at $127,696.49.

1. Mortgages: Should I Buy or Rent?
3D Realty Handshake by flickr user lumaxart

2. quot;How Much Can I Afford to Pay for a Home?quot;
Banks and other lending institutions have developed a formula that
allows you to calculate the maximum price of a home you can afford.
This formula is known as the Gross Debt Service Ratio, or GDSR.
According to this formula, anyone buying a home should spend no
more than 32% of gross income on household or accommodation
expenses, including mortgage payments, property taxes, heating
and condo/strata fees. The formula may be written as:
Find your maximum mortgage
Looking for a house? amount and monthly payment
http://is.gd/zxd5 http://is.gd/zxay

3. Lucy Brown wants to buy a condo, but does not know how much money
she should spend based on her income. She earns $44 000 per year,
and has saved $9000 for a down payment. The property taxes for the
condo she likes are $1500 per year, and the heating costs average $90
per month. The condo/strata fees are $180 per month. The bank will
give her a 25-year mortgage at an interest rate of 7.5%. What is the
maximum price she can afford for a condo, based on spending no more
than 32% of her gross income on household and accommodation
HOMEWORK
expenses?

4. Gross Monthly Income: $44 000 ÷ 12 = $3 666.67
Monthly Property Tax: $1 500 ÷ 12 = $125.00
Monthly Heating Bill: $90.00
50% of Condo Fees: 0.5 * 180 = $90.00 25 Year Mortgage at 7.5%
Max GDSR = 0.32 N=
I%=
0.32 = Monthly Mortgage PMT + 305
PV=
3666.67
PMT=
0.32(3666.67) = Monthly Mortgage PMT + 305 FV=
P/Y=
0.32(3666.67) - 305 = Monthly Mortgage PMT
C/Y=
$868.33 = Monthly Mortgage PMT PMT: END BEGIN
Down PMT: $9 000
Maximum Possible Mortgage
$9 000.00 + $118696.49 = $127 696.49

5. Your turn ...
A group of rural students is planning to go to university. One of the
members of the group suggests that they purchase an older home rather
than rent an apartment. After a careful analysis of their finances, the group
decides that their gross monthly income would be around $3000.00.
Monthly property taxes are estimated to be $125.00. Heating bills are
estimated to be $150.00. The group can arrange a mortgage at a rate of
9%. The three members of the group are able to come up with a down
payment of $8000.00. Determine the maximum affordable purchase price
that can be considered if they take out a 25-year mortgage.

6. A group of rural students is planning to go to university. One of the
members of the group suggests that they purchase an older home rather
than rent an apartment. After a careful analysis of their finances, the group
decides that their gross monthly income would be around $3000.00.
Monthly property taxes are estimated to be $125.00. Heating bills are
estimated to be $150.00. The group can arrange a mortgage at a rate of
9%. The three members of the group are able to come up with a down
payment of $8000.00. Determine the maximum affordable purchase price
that can be considered if they take out a 25-year mortgage.
Total allowable monthly
expenses on house
0.32($3000) = $960
Heating & Taxes
$125 + $150 = $275
Maximum Affordable
Maximum Possible Purchase Price is
Monthly Mortgage PMT $90 731.73
$960 - $275 = $685

7. Are there other costs
involved in buying a home?

8. Additional Costs When Purchasing a Home
1. Appraisal fees

9. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs

10. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs
3. Property survey

11. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs
3. Property survey
4. Insurance costs for
high ratio mortgages

12. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs
3. Property survey
4. Insurance costs for
high ratio mortgages
5. Home insurance

13. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs
3. Property survey
4. Insurance costs for
high ratio mortgages
5. Home insurance
6. Land transfer tax

14. Additional Costs When Purchasing a Home
1. Appraisal fees
2. Inspection costs
3. Property survey
4. Insurance costs for
high ratio mortgages
5. Home insurance
6. Land transfer tax
7. Interest adjustments

15. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs
3. Property survey
4. Insurance costs for
high ratio mortgages
5. Home insurance
6. Land transfer tax
7. Interest adjustments

16. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey
4. Insurance costs for
high ratio mortgages
5. Home insurance
6. Land transfer tax
7. Interest adjustments

17. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages
5. Home insurance
6. Land transfer tax
7. Interest adjustments

18. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
5. Home insurance
6. Land transfer tax
7. Interest adjustments

19. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
12. Service charges
5. Home insurance
6. Land transfer tax
7. Interest adjustments

20. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
12. Service charges
5. Home insurance
13. Immediate repairs
6. Land transfer tax
7. Interest adjustments

21. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
12. Service charges
5. Home insurance
13. Immediate repairs
6. Land transfer tax
14. Appliances
7. Interest adjustments

22. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey 10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
12. Service charges
5. Home insurance
13. Immediate repairs
6. Land transfer tax
14. Appliances
7. Interest adjustments
15. Decorating cost

23. Additional Costs When Purchasing a Home
8. Prepaid property
1. Appraisal fees
taxes and utilities
2. Inspection costs 9. Legal fees
3. Property survey
10. Sales tax (GST
on new homes)
4. Insurance costs for
high ratio mortgages 11. Moving expenses
12. Service charges
5. Home insurance
13. Immediate repairs
6. Land transfer tax
14. Appliances
7. Interest adjustments
15. Decorating cost

24. Canadian Mortgages
Most home buyers make monthly payments, but it is also possible to
make payments twice a month, every two weeks, or every week. The
amount of the payment is determined by the following:
• the principal of the mortgage (the size of the loan)
• the amortization term (the number of years you
have to repay the mortgage)
• the interest rate
It is important to use a loan calculator that calculates Canadian
mortgage payments, because for Canadian mortgages the
interest is compounded every six months, and this may not
be the case for mortgages in other countries.
The Mortgage Centre
http://www.mortgagecentre.com/index.cfm

25. The Dirksons Additional Costs to Purchase Their Home
HOMEWORK
The Dirksons live in Brandon and bought a house in Portage.
They had the home appraised and paid $125.00 to have it done.
The bank required a survey, and the cost of the survay was
$300.00. the price of the home was $135 000.00, and since their
down payment of $20 000.00 was less than 25% of the total
price, they had to buy “High Ratio Mortgage Insurance” at a cost
of 1.25% of the mortgage. The home insurance premium was
$475.00 but they recieved a $150.00 rebate from the policy they
had on their home in Brandon. The property taxes for the year
had been paid by the previous owner, and so they owed 7
months of the total tax bill of $2 125.00. A dry-walling bill of
$650.00 was split equally between themselves and the former
owner. The Dirksons bought a used washer and dryer for
$920.00. Moving expenses were $320.00 and legal fees that
included the land transfer costs were $965.00.

26. The Dirksons live in Brandon and bought a house in Portage.
They had the home appraised and paid $125.00 to have it done.
The bank required a survey, and the cost of the survay was
$300.00. the price of the home was $135 000.00, and since their
down payment of $20 000.00 was less than 25% of the total
price, they had to buy “High Ratio Mortgage Insurance” at a cost
of 1.25% of the mortgage. The home insurance premium was
$475.00 but they recieved a $150.00 rebate from the policy they
had on their home in Brandon. The property taxes for the year
had been paid by the previous owner, and so they owed 7
months of the total tax bill of $2 125.00. A dry-walling bill of
$650.00 was split equally between themselves and the former
owner.

27. The Jamison's Mortgage
HOMEWORK
The Jamison family has decided to buy a house. they will require a
$121 000.00 mortgage to help pay for the house.
• Bank A offers them a 25 year mortgage at 7.25%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid.
• Bank B offers them a 20 year mortgage at 7.25%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid if
they repay the mortgage with monthly payments over 20 years.
• How much interest do they save by repaying the mortgage in
20 years instead of 25 years?
• Bank C offers them a 25 year mortgage at 7.00%. Determine the
size of the monthly payment, the total amount paid for the mortgage,
and the total amount of interest paid when the mortgage is repaid.
• How much interest do they save by paying the mortgage in 25
years at 7.00% instead of in 25 years at 7.25%. (i.e. how much
cheaper is Bank C than bank A?)