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
