Question

Giselle wants to buy a condo that has a purchase price of $163,000. giselle earns $2,986 a month and wants to spend no more than 25% of her income on her mortgage payment. she has saved up $33,000 for a down payment. giselle is considering the following loan option: 20% down, 30 year at a fixed rate of 6.25%. what modification can be made to this loan to make it a viable option, given giselle’s situation?

Answer 1

The condo costs $163,000, earns $2,986 per month, spends no more than 25% of her income, then if she pays $33,000 for the down payment, the remaining amount would be $130,000. Since 20% of the initial cost is only $32,600, she can adjust her down payment to 20.25% of the initial cost so that the annual payments would be less.

Answer 2

The modification that can be made to this loan to make it a viable option, given giselle’s situation is: Change the interest to 5.5%.

Modification to be made to the loan

Given:

Purchase price = $163,000

Earning per month=$2,986

Percentage not willing to spend=25%

Down payment =$33,000

Down rate=20%

Analysis

Remaining Loan amount=$163,000-$33,000

Remaining Loan amount=$130,000

Loan amount of condo=$163,000×.20

Loan amount of condo= $32,600

Increase in down rate=$163,000×20.25%

Increase in down rate=$33,007.50

Therefore based on above analysis in order to make the loan amount a viable option the best alternative is to change the interest rate to 5.5% as this will make the total payment to cost lesser.

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