chapter 17 ravi Flashcards
Mr Gill has applied to the bank for a mortgage loan to finance a $400k home. His income is $50,000 per year. The bank informs him that they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating his maximum loan. Current mortgage rates are 5.5% per annum, compounded semi-annually for 20-year amortization mortgages. Annual property taxes are $1000 and mortgage payments are to be made monthly. What is the maximum mortgage the bank will grant?
Re evaluate the house and lending value is $450,000
Lending value = $400,000 $450,000
Property tax = $1000/year
L/V = 80%
L/V = .80
L=.80 x V
L = .80 x 450,000
L = $360,000
Because the income didnt change, and the GDSR didnt change, then the payment maximum can only be 1,166.67
Which means the loan can only be $170,468.27 which will still be the maximum loan amount
Max loan using loan to value constrain is $340,000
Max loan using the income constraint is $170,468.27
Lender will loan the lower of the two constraints which is the GDSR constraint $170,468.27
Mr Gill has applied to the bank for a mortgage loan to finance a $400k home. His income is $50,000 per year. The bank informs him that they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating his maximum loan. Current mortgage rates are 5.5% per annum, compounded semi-annually for 20-year amortization mortgages. Annual property taxes are $1000 and mortgage payments are to be made monthly. What is the maximum mortgage the bank will grant?
Lender is willing to go L/V = 85%
Lending Value = $400,000
Property tax = $1,000/year
L/V = 80% NOW 85%
L/V = .85 X V L = .85 x 400,000 L = $340,000
Basically, the lender going up in lending value to 85% did not help the family in any type of way because still their income would result in the lesser lending value being available
Max loan using loan to value constraint is $340,000
Max loan using the income constraint is $170,468.27
Lender will loan the lower of the two constraints which is the GDSR constraint $170,468.27
Mr Gill has applied to the bank for a mortgage loan to finance a $400k home. His income is $50,000 per year. The bank informs him that they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating his maximum loan. Current mortgage rates are 5.5% per annum, compounded semi-annually for 20-year amortization mortgages. Annual property taxes are $1000 and mortgage payments are to be made monthly. What is the maximum mortgage the bank will grant
Listed price $420,000
Sold price $405,000
Appraisal value $430,000
Lending value $400,000
(ravi says-listing price, sold price, appraisal value is not important, he doesn’t need to look at them)
-draw picture of the home
Lending value = $400,000
Property tax = $1,000/year
L/V = 80%
Gross debt service ration (gdsr) = 30% Gross income (gi) = $50,000/year
Draw picture of bank
J2(interest rate) = 5.5%
N(amortization period)=20 years
Pv pmt monthly fv(0)
(loan)
Lending value = $400,000 Property tax = $1,000/year L/V (loan to value)= 80%.... L = .80 x V L = .80 x $400,000 L=$320,000
Gross debt service ratio (gdsr) = 30% Gross income (gi) = $50,000/year
Gdsr = p + i + t/ gi = pmt(payment) + t(property tax) / gi (gross income)
.30 = pmt + $1,000/$50,000
.30 X 50,000 = PMT + 1,000
15,000 = PMT + 1,000
15,000 - 1,000 = PMT
PMT = 14,000 per year
PMT = $14,000/12
PMT = $1,166.67
-what this means, is that we figured out, the max payment this home owner would be able to afford based on the 50,000 per year and the gdsr = $1,166.67
Now draw a timeline diagram
pv——— pmt—————fv
?———–$-1,166.67——$0
Put in your interest rates
J2 = 5.5% (convert to J12)
N = 20 year (this needs to be turned into months = 240 months)
PV
$170,468.27
Max loan using loan to value constraint is $320,000
Max loan using the income constraint is $170,468.28
Lender will loan the lower of the two constraints which is the GDSR constraint $170,468.27
what is the difference between prime mortgages and sub prime mortgages
prime mortgages also called “a mortgages” represent most of the lending in canada
prime mortgages are less risky since the chances of the borrower defaulting are low
submortgages (b mortgages)
a subprime mortgage (also referred to as a B, non prime, near prime, non conforming, or high- risk)
this is a mortgage this is granted to a loan candidate who is at high risk, due to one or a combination of:
-poor or limited credit rating
-income non verifiable
-a previous consumer proposal and
- a bankruptcy
what does GI stand for
gross income
what are the 5 C’s of credit in qualifying a borrower (mortgage approval procedure)?
. character: will the borrower repay the loan?
-. a subjective opinion based on the borrowers current employment situation, educational background, business experience, length of time at current residence
- capital- how much money the borrower personally will invest in the property (down payment)
- capacity: can the borrow repay the loan?
- looking at a borrowers annual gross income (NOT net income)
- using lending constraints such as debt service ratios - credit - what is the borrowers credit/repayment history? by reviewing a credit report from a credit bureau
- collateral - what is the addition security for the loan in a case a borrower is unable to repay it?
real property is typically pledged as security for the loan
what is GDSR
gross debt service ratio
how is GDSR determined (what is the equation)
PMT + Tax / Gross Income
what is TDSR
total debt service ratio
how is TDSR determined(what is the equation)
PMT + Tax + other debts / Gross Income
what is Lending Value
long term estimated value of the property may be set by the lender to be lower than the market value or the purchased price
what is market value
estimate of what the property might sell for given good marketing
what is purchase price
negotiated price of property
what is purchase cost
sold price plus legal and other costs
what is list price
-the price that an item is put in the market to sell for
what is sold price
the price the buyer pays for the property
what is appraisal value
an evaluation of a property value based on a given point in time
the evaluation is performed by a professional appraiser
the appraisers is usually chosen by the lender, but the appraiser is paid for by the borrower
property taxes
taxes paid for on the property
mr and mrs gill had applied for a mortgage loan to finance a $400,00 home. mr gills income is $50,000 per year(Gross Income).
The bank informs him they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating the maximum loan
current mortgage rates are 5.5 % per annum, compounded semi annually for 20 year amortization mortgages
annual property taxes of the house are $1,000 and mortgage payments are to be made monthly
what is the maximum mortgage loan the bank will grant
L
__ = .80
V
L = .80 X V (which is 400,000)
L = $320,000 (which is the possible loan amount)
**question for q cards- when determining how much a person can get loan for mortgage, what is the first calculation = determine the loan % divided by value of home*
Gross Debt Service Ratio (GDSR) = 30% Gross Income (G I) = $50,000/year Property taxes = 1000/year
GDSR = P(principle) + I(interest) + T = PMT + T
________ ________
GI GI
.30 = PMT + $1,000
_____________
$50,000
.3 X 50,000 = PMT + 1,000
15,000 = PMT + 1,000
14,000= PMT
PMT per month = 14,000
_____
12 = 1,166.67 (P + I)
j2 = 5.5 N = 20
_______________________
PV PMT FV
? -1166.67
note-the question reads “ what is the maximum mortgage loan the bank will grant- this means PV!!
J2= 5.5 has to be converted to J12
“everything is second function” not sure why but it is
this is tricky, going to write it in exact steps
- first we need to convert (because mortgage payments are monthly)
(step 1) 2 ↴ PMT (step 2) 5.5 ↴ i/yr (step 3) ↴ PV (step 4) ↴ 12 PMT (step 5) ↴ i/yr =5.43 (this is J2 converted to J12)
for q cards - convert J2 = 5.5 to j12 ⬆
make some q cards based on this page…
https://www.mathsisfun.com/money/compound-interest-periodic.html
what i have to figure out is, why do we convert the J2 to j12 is it because of the calculator, and how do we remember to do it??
answer is = $170,468.21
k, so i figured something out here, where we were going wrong is buy starting out by putting
2 second function p/yr but it turns out, once we convert to J12, we do not do that, we take that new i/yr and then go from left to right on the calculator i.e.
5.43 i/y n=240 (12 X 20) pmt = 1166.67 fv= 0 then press PV = $170,468.21
max loan using loan to value constraint is $320,000
max loan using the income constrain is $170,468.27
lender will loan the lower of the two constraints which is the GDSR constraint $170,468.27
when determining how much a person can get loan for mortgage, what is the first calculation
determine the loan % divided by value of home
convert J2 = 5.5 to j12
(step 1) 2 ↴ PMT (step 2) 5.5 ↴ i/yr (step 3) ↴ PV (step 4) ↴ 12 PMT (step 5) ↴ i/yr =5.43 (this is J2 converted to J12)
This time use 85% as the loan to value ratio
mr and mrs gill had applied for a mortgage loan to finance a $400,00 home. mr gills income is $50,000 per year(Gross Income).
The bank informs him they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating the maximum loan
current mortgage rates are 5.5 % per annum, compounded semi annually for 20 year amortization mortgages
annual property taxes of the house are $1,000 and mortgage payments are to be made monthly
what is the maximum mortgage loan the bank will grant
gross debit service ratio (gdsr) = 30%
gross income (G I) = $50,000
lender is willing to also use 50% of wives income (Mr gill gross income is 32,000 per year)
property taxes = 1,000/year
GDSR = P(principle) + I(interest) + T = PMT + T
________ ________
GI GI
.30 = PMT + 1,000
____________
66,000
19,800 = PMT + 1,000
18,800 = PMT
18,800/12 = 1,566.67 (P + I)
J2 = 5.5 % N = 20
____________________
PV PMT FV
? -,1566.67 $0
confession first (J2 to J12 =) 2 ↴ P/YR 5.5 ↴ NOM ↴ PV 12 ↴ p/yr ↴ i/yr = 5.43
then proceed with..
240 N
-15,666.67 PMT
0 = FV
PV
= 228,914.36
mr and mrs gill has applied for a mortgage loan to finance a $400,000 home. his income is $50,000 per year.
the bank informs him that they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating his maximum loan.
current mortgage rates are 4.8% per annum, compounded semi annually for 20 year amortization mortgages.
annual property taxes of the house are $1,000 and mortgage payments are to be made monthly.
what is the maximum mortgage loan the bank will grant?
L 80%
______ = ______ = $320,000
v 400,000
j2 = 5.5 n = 20
gdsr = p + i + t
_______
GI
.30 = PMT + 1,000
____________
$50,000
.30 X 50,000 = PMT + 1,000
for my q cards, what is the gdsr ratio!!!
j2 = 4.8% n= 20
ok, the reason i am struggling so much with the conversion is because, 1 you don’t put N in there, and 2, after ↴ PV, you just put 12 ↴ PMT and then press i/yr NOT PV!!!
try to remember, when doing the conversion, stay within the 3 middle buttons (I/YR,PV, PMT)
_______________________
pv pmt FV
? -1,1655.67 0
pv = $180,650.21
mr and mrs gill has applied for a mortgage loan to finance a $400,000 home. his income is $500,000 per year.
the bank informs him that they will apply an 80% loan to value ratio and a 30% gross debt service ratio when calculating his maximum loan.
current mortgage rates are 5.5% per annum, compounded semi annually for 20 year amortization mortgages.
annual property taxes of the house are $1,000 and mortgage payments are to be made monthly.
what is the maximum mortgage loan the bank will grant?
l
_
V = 80%
80% X 400,000 = $320,000
j2 = 5.5 n = 20
gdsr = p + i + t
_______
gi
.30 = pmt + 1000
__________
500,000
150,000 = pmt + 1000 149,000= PMT /12 = 12,416.66
___________________
pv pmt FV
? -12,416.66 0
= 1,814,264.76
max loan using the loan to value constraint is $320,000
max loan using the income constraint is $1,814,264.76
lender will loan the lower of the two constraints which is the value constraint $320,000
