Jack and Jill are a married couple who are saving for their first house. They have decided on an area of town at the top of the hill. Both Jack and Jill are employed with a total salary of $65,000. They currently have $28,500 in savings in their TSFA’s and plan on saving $10,000 per year for the next 5 years to build their down payment. These savings are expected to earn 3.5% per year in their TFSA’s which will allow their saving to grow tax-free. Jack and Jill have two cars which they need to commute to work. Jill recently inherited a camping trailer from her late uncle. They do not plan on using the trailer until they start a family which will be after they purchase a house. A friend has offered to purchase the trailer for $11,500.

The house style that Jack and Jill have decided they want currently costs $410,964.55 and is expected to increase at the rate of inflation which is expected to be 4% for the next 5 years.

Required

1) What will Jack and Jill’s dream home cost at the end of 5 years?

2) What will J & J’s down payment be at the end of 5 years?

3) Will their down payment be enough to satisfy the 25% down payment requirement in order to avoid using CMHA mortgage insurance?

4) If Jack and Jill can only earn 3.5% on their savings discuss four (4) ways that Jack and Jill can increase their down payment to the required 25% level?

5) Calculate J & J’s monthly mortgage payments, assuming the down payment is 25% of the purchase price of the home and the mortgage rate at the time of purchase is 4% for a mortgage with a 25-year amortization?

6) What will J & J’s GDS be assuming their combined income does not change and property taxes for their dream home are $2,500 per year?

7) Will Jack and Jill’s GDS be acceptable given the ‘rules of thumb’ for maximum GDS levels?

8) Discuss four (4) ways (other than increasing their income) that Jack and Jill can reduce their GDS in order that they can afford their dream home without violating the maximum GDS guidelines.