Ashley and Martin have saved up $150,000 for a down payment on their first home. In addition, they each have $15,000 in their RRSPs. They have no other investments. The property taxes in the area in which they are searching for a home are estimated to be $7,200 a year.
Ashley works as a legal secretary for a small law firm and earns $65,000 gross per annum. She has employer provided life insurance and extended health care only.
Martin works in construction and earns $80,000 gross per annum. He has no employer provided benefits. His work is seasonal and is never guaranteed.
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The only debt they have is a car loan with a balance of $15,000 and monthly payments of $450.
Their financial institution has offered them the following options with a 25 year amortization period:
Term Rate (APR)
5 year variable closed 3.45%
5 year fixed closed 3.25%
3 year fixed closed 2.95%
1 year variable open 2.65%
Ignore the stress test rules for this question.
a) Using the ratios based on textbook thresholds, how much mortgage can they qualify for assuming monthly payments if they select a 3 year fixed closed mortgage?
b) Identify 2 other aspects should they consider that are not reflected in the ratios.
c) What type of mortgage would you recommend for them based on the options provided and why?