just need them answered plz in order
IMG_3587.JPG IMG_3588.JPG IMG_3606.JPG IMG_3607.JPG IMG_3608.JPG IMG_3609.JPG IMG_3610.JPG IMG_3611.JPG Purchasing & Financing a Home Chapter 7 – Purchasing & Financing a Home Selecting a Home Some things you may consider: Price What are other homes going for in the area? Convenient location Commute to work Maintenance Old home versus new home School system Taxes Resale value Be aware of realtor fees if using a realtor to sell your home Personal preferences Size of kitchen, size of the yard Selecting a Home Relying on a Realtor The home buyer is NOT responsible for paying a commission. Using Online Realtor Services MLS – Multiple Listing Service Homes available through realtors who are members of service. Negotiating a Price Mortgage Case – Opening Click here Don’t click on this! Mortgage Case – Instructions Factors to consider Furniture, Appliances, Home maintenance Home Buyers’ Plan Allows you to borrow up to $25,000 from your RRSP, interest free. If buying a home with a spouse/partner, you can both contribute up to $25,000. 15 years to pay back. Pre-approval certificate Most financial institutions will issue as a guideline on how large a mortgage you can afford. Provides you with a mortgage interest rate guarantee. Does not guarantee you will be approved for a mortgage. How Much Can You Afford? Mortgage Case – Section 1 Down Payment Down Payment In most circumstances, you will need to have a down payment of at least 5% of the purchase price. E.g. If $300,000 house, you would need a down payment of at least $15,000 ($300,000 * 0.05). Conventional Mortgage Down payment is at least 20% (text) of the home’s appraised value. Plan for making down payment? Mortgage Case – Section 2 For Section 2, you are required to calculate your down payment based on the percentage provided. EXAMPLE: You find a home that is worth $400,000. Assuming you can afford a 6.4% down payment, what would your down payment be? Mortgage Default Insurance Mortgage Default Insurance Mortgage Insurance (CMHC, Genworth Financial Canada) Benefits the LENDER – NOT the borrower Generally required for high-ratio mortgages (mortgage where down payment is less than 20%). Lender may require insurance even if down payment is higher than 20% (based on financial history). Lender is charged a premium, which is typically passed on to borrower (see Example on page 209 of text). Mortgage Case – Section 3 For Section 3, you are required to calculate your CMHC premium (based on your down payment), and your new mortgage amount by adding the CMHC premium to the mortgage amount you calculated in Section 2. EXAMPLE – What would the CMHC premium be for a home appraised at $400,000 with a 6.4% down payment? – For your case, and for this example, use the premium as set out on the CMHC website. Mortgage Options TermMeaning Mortgage Amount borrowed which allows you to purchase a home. Amortization Expected number of years it will take a borrower to pay off the entire mortgage loan balance. Mortgage termThe period of time over which terms of the mortgage contract will not change (e.g., interest rate in a fixed rate mortgage). Interest rate How much interest you are paying (e.g., 5% fixed rate mortgage). Mortgage Payment How much you pay at a given time (e.g., monthly, bi-weekly, etc.) Prepayment Privileges Features that allow borrowers to reduce their mortgage amount. Fixed/Variable Rate Mortgages Interest Rates Fixed Rate Mortgage Variable Rate Mortgage (VRM) A mortgage in which a fixed interest rate is specified for the term of the mortgage. A mortgage where the interest charged on the loan changes in response to movements in a specific market determined interest rate (usually the prime rate). Open Mortgage Closed Mortgage Allows you to pay off the mortgage balance at any time during the mortgage.Restricts your ability to pay off the mortgage balance during the term unless you are willing to pay a financial penalty. Financing (Mortgage) - Calculations TermCalculator Meaning Mortgage PV Amount borrowed which allows you to purchase a home. Interest rate I/Y How much interest you are paying (i.e. 5%). Mortgage Payment PMT How much you pay at a given time (i.e. monthly). Frequency of Payments per year P/Y If monthly, your P/Y will be 12. If semi-monthly, your P/Y will be 24. If bi-weekly, your P/Y will be 26. If weekly, your P/Y will be 52 Amortization Expected number of years it will take a borrower to pay off the entire mortgage loan balance. Number of payments over amortization period.NTotal number of payments for amortization period (i.e. length of amortization period* P/Y). Compound Periods C/Y Number of times interest is compounded in the year (If a question is silent regarding compounding, C/Y is = 2). Mortgage Case – Section 4 For Section 4 of the mortgage case, you are required to calculate the mortgage payment for your home. Using the value you calculated for the mortgage amount in the example above (the one that added the CMHC premium), calculate the monthly mortgage payment using a 15 year amortization and an interest rate of 3% (based on a 5 year fixed rate mortgage). Use this information to complete the following, and determine your monthly payment. PV P/Y C/Y I/Y PMT N AMORT Finding other information You use the AMORT feature in your calculator (2nd PV) in order to find the following: Balance of mortgage at a certain time How much interest on a mortgage has been paid to a certain time How much principal on a mortgage has been paid to a certain time The AMORT feature will take all other information you have placed in the calculator (i.e. PV, PMT, I/Y, C/Y, P/Y, N) and ask you for the time where you want to calculate the current balance owing and amounts of principal and interest paid that have been paid (this is P2). Example: If you want to find the balance of a mortgage after the 6th payment has been made, you would put a 6 in the P2 screen. Mortgage Case – Section 4 For Section 4, you are also required to analyze what has happened over a given period of time for your mortgage. Using the information you calculated in previous slides, complete the following chart. Calculator20 year amortization25 year amortization P/Y =1212 C/Y =22 N = I/Y = PV = PMT = FV = Analysis of what happened over the first three (3) years and six (6) months (assume that your mortgage interest rate (I/Y) does not change between mortgage terms).P1 = P1 = P2 = P2 = BAL Outstanding = BAL Outstanding = Total PRN = Total PRN = Total INT = Total INT = Example Using the information from the last question, calculate the following: How much interest you paid with your first mortgage payment P1 = P2 = How much interest you paid over two years and eleven months. P1 = P2 = Stress Test – What is It? All prospective homeowners borrowing from a bank will now have to pass a “stress test” to see if they qualify for a mortgage. Purpose - Will homeowners be able to afford the home if interest rates go up? Stress Test - Calculation Conventional Mortgage, the higher of: 5-year benchmark rate published by the Bank of Canada, OR The customer’s mortgage rate + 2% High Ratio Mortgage, the higher of: 5-year benchmark rate published by the Bank of Canada, OR The customer’s mortgage rate Mortgage Case – Section 5 For Section 5, you are required to calculate what your payment would be after applying the “stress tested” interest rate. Using the value you calculated for the mortgage amount in the example above (the one that added the CMHC premium), calculate the monthly mortgage payment using a 15 year amortization and an interest rate of 5% (3% + 2% (stress tested)) - based on a 5 year fixed rate mortgage. Use this information to complete the following, and determine your monthly payment. PV P/Y C/Y I/Y PMT N AMORT Mortgage Payment Options Mortgage Case – Section 6 Mortgage Payment Frequency CalculatorSemi-monthlyBi-weeklyAccelerated bi-weekly P/Y C/Y N I/Y PV PMT FV AMORT Payment Frequencies (how many times are you making your mortgage payments) Use the monthly mortgage payment you solved for the Section 4 material for a 15 year amortization period to complete the following chart (NOTE: Formulas on are on page 213 of your text). Step 1 = Calculate PMT using formulas on page 213 of text Step 2 = Calculate N using the calculator Step 3 = Calculate AMORT = N / P/Y Property Tax - Edmonton You can find the City’s assessed value on the City of Edmonton website. You can calculate your property tax bill using the following: City’s assessed value x (Mill Rate /1,000) Property Tax Adjustments Homeowners may choose to prepay their property taxes, which are normally due for the calendar year on June 30th. In effect, homeowners who pay their taxes in a lump sum on this date are prepaying for the months of July to December 31st. JANFEBMARAPRMAYJUNJULAUGSEPOCTNOVDEC Mortgage Case – Section 7 You take possession of the $400,000 home on September 1st. The seller of the home prepaid the property taxes on the property on June 30th. Based on the above, answer the following: a) Based on a Mill Rate of 8.6869, what is the total tax bill for the year? b) Who will need to be reimbursed for the property taxes that were paid? c) How much will need to be paid? GDS Gross Debt Service (GDS) Ratio = Mortgage related debt payments (e.g., mortgage, heating costs, property taxes, half of any condo costs) / Total Gross Monthly Income NOTE: Convert all payments into monthly payments (i.e. if provided with annual figures, convert it to a monthly figure!) Example: If provided with an annual cost for property taxes at $2,400, convert it to a monthly cost (i.e. $200) Most financial institutions will provide you with a mortgage loan only if your GDS ratio is no more than 35%. TDS Total Debt Service (TDS) Ratio= Mortgage related debt payments + all consumer debt payments (e.g., mortgage, heating costs, property taxes, half of any condo costs + credit card, car loan) / Total Gross Monthly Income