Purchasing and Financing a House
I. Finding the House (1)
1. You will need to find a home located in the City of Edmonton. Once you have found your home, you MUST submit, along with this assignment, a sheet detailing the important information about your home (square feet, number of bedrooms, etc.) .
NOTE: Condominiums, townhouses, duplexes, and homes not located in the City of Edmonton are not acceptable for this case.
Now that you have found your home, please indicate the list price in the box below.
II. Down Payment and Mortgage Amount (2)
2. Assuming that you will be paying the list price for the house, what is the minimum down payment, in dollars, that you will have to put down? Assume that you will make a minimum down payment of 5%. Show your calculations. (1 mark)
3. Once you make your down payment, the remaining amount is your mortgage amount. What is your mortgage amount? Show your calculations. (1 mark)
III. CMHC Premium (2)
4. Since your down payment is less than 20%, you will incur a CMHC premium. Based on your answer for Question 3, calculate your CMHC premium. Once you calculate your premium, you will need to recalculate your mortgage amount. What will be your new mortgage amount? Use the current CMHC premium figures found on the CMHC website at CMHC Mortgage Loan Insurance Premium Rates. (2 marks)
IV. Mortgage Rate (1)
5. In order to complete the following chart, you will need to go out and research current mortgage rates for a five (5) year fixed rate mortgage term. The mortgage rates you select must be from a major bank and/or credit union – not a mortgage company. Once you have found your two rates, you must submit a paper or digital copy of the resource you relied on for your information and submit it as part of your assignment. (1 mark)
Financial Institution
Mortgage Rate (5-year fixed)
V. Prepayment Privileges (2)
6. Describe the prepayment privileges offered by EACH financial institution listed in question 5. (2 marks)
VI. Calculating Your Monthly Mortgage Payment (3)
7. Based on your answers for questions 5 and 6, select which financial institution’s mortgage rate (I/Y) you will use to complete the table below. You will also need your mortgage amount from question 4 to complete the following table. (3 marks)
Calculator 15 year amortization 20 year amortization 25 year amortization
P/Y = 12 12 12
C/Y = 2 2 2
N =
I/Y =
PV =
PMT =
FV = 0 0 0
Analysis of what happened over the first five (5) years P1 = P1 = P1 =
P2 = P2 = P2 =
BAL Outstanding =
BAL Outstanding =
BAL Outstanding =
Total PRN =
Total PRN =
Total PRN =
Total INT =
Total INT =
Total INT =
VII. Payment Frequencies (5)
8. Select a mortgage payment (PMT) from question 7 (i.e. the one you think you would be comfortable in making if you were truly financing this home), and complete the following chart by calculating the new mortgage payment and the new amortization if you change the payment frequency. Use the formulas in Exhibit 7.4 on page 205 of your text . (5 marks)
Mortgage Payment Frequency
Calculator Semimonthly Bi-weekly Accelerated biweekly Weekly Accelerated Weekly
P/Y
C/Y
N
I/Y
PV
PMT
FV
AMORT (t)
VIII. Calculating Annual Property Tax (3)
9. Go to the City of Edmonton website and determine the City of Edmonton’s assessed value for your home for 2016 and write it in the space below. You must also print off the information you found on the website and submit it along with this assignment. (1)
10. Using your value from Question 9, use the City of Edmonton’s property tax estimator to determine your approximate annual and monthly property tax bill and write these numbers in the space below. You must also submit the information you found on the website by including it as part of your submission in drop box. (1)
11. Assuming you took possession of this home on March1st, what will the property tax adjustment be (assume that the seller of the home pays their property taxes annually)? (1)
IX. Qualification (3)
NOTE: After completing the questions below, if you do not qualify for a mortgage based on a GDS of 32% and TDS of 40%, you MUST make the necessary adjustments to get under these numbers.
12. Using the monthly figures you have already determined (mortgage payment, property tax) calculate your gross debt service ratio? Assume that the average monthly cost of heating a home $250 and that your annual household income is $120,000 (2 marks)
13. Using the monthly figures you have already determined (mortgage payment, property tax) and the figures provided in Question 12, calculate your total debt service ratio? Assume that your monthly consumer debt is $500. (1 mark)
X. Closing Costs (1)
14. Based on the house you have decided to purchase and what you have read in chapter 7 and otherwise in the course, explain which closing costs you anticipate you will need to incur and why?
XI. Mortgage Structure (5)
15. If you were truly financing this home, how would you structure your mortgage payment (i.e. term, amortization, payment frequency, fixed/variable, open/closed)? Explain and support why you would structure your mortgage this way.
Term:
Amortization:
Payment Frequency:
Fixed or Variable:
Closed or Open:
XII. Reflection (4)
16. After completing this assignment, what have you learned about purchasing and financing a house? Marks will be awarded based on the clarity, logic, detail and relevance of your answer to the case you just completed (i.e. simply stating that buying a house is expensive will result in a minimal mark – explain why you think it is expensive). NOTE: Take this as an opportunity to reflect on what you truly learned and what you will be able to apply when you actually look for a house.
(4 marks)
Lessons Learned
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