Donald and Alex have a combined gross monthly income of $5500. They want to buy a house in a neighborhood where the average monthly heating cost is $200 and monthly property taxes are $325. a)...

Donald and Alex have a combined gross monthly income of $5500. They want to buy a house in a neighborhood where the average monthly heating cost is $200 and monthly property taxes are $325.

a) Calculate the maximum monthly mortgage payment they can afford, based on the gross debt service ratio. Show your work.

b) Based on the maximum monthly mortgage payment in a), their bank has offered them a 25 year mortgage at an interest rate of 3.5%, compounded semi-annually. If they saved $20,000 for a down payment, what would be the maximum house price they can afford? Show your work.