Go to the Canada Mortgage and Housing Website At

MEL 4E

Expectation - Gather and compare, through investigation, information about purchase prices of different types of owned accommodation in the local community.

Buying a house

Go to The Canada Mortgage and Housing website at www.cmhc-schl.gc.ca

Click on

 English  Consumers  Buying a home  Homebuying Step by Step  Step 2 – Are you financially ready?

1. How Much Can You Afford? a) What is the first affordability rule? (2 marks) b) Housing costs include P.I.T.H. What do these letters stand for? (2 marks) c) What is the “second affordability rule”? (2 marks) d) Scroll down the webpage to “Your maximum home price”. Use the table provided to answer the following questions. (The table assumes a mortgage interest rate of 8% which is higher than today’s rates).

i) Bob and Lainey have a combined income of $70,000. They have saved $12,000 for a down payment. What is the price of a house that they can afford? (2 marks)

ii) Marcy has inherited $60,000 and she plans to use it as a down payment. Her gross annual income is $61,000. How much house can she afford? (2 marks) iii) Edna makes $35,000 per year. She has saved $5000 for a down payment. How much house can she afford? (2 marks)

Costs to be Aware of When You Buy

Go to The Canada Mortgage and Housing website at www.cmhc-schl.gc.ca

Click on

 English  Consumers  Buying a home  Homebuying Step by Step  Step 3 – How Much Will It Really Cost?

Using the information on the webpage describe each of the following and state an estimate or range for the price of each.

Assume that you are buying a new house that costs $175,000 and is on a well. Also assume that you are making a 10% down payment. (24 marks)

Item Description Price range or estimate 7% GST

Down Payment

Home Inspection

Survey Fee

Land Transfer Tax*

Prepaid Taxes or Utility $500 Bills Electrical and phone connection fees

Legal Fees

Appraisal Fee

Mortgage Loan Insurance Premium

Water Quality and Quantity Certification

Mortgage Payment**

Property Insurance $1500

* Go to www.homelegalcost.com and click on Land Transfer Tax on the menu to the left.

** Go to www.royalbank.com/products/mortgages to access their mortgage centre.

Look at the menu on the left hand side of the page Click on mortgage calculators Click on mortgage payment calculator Click on use this calculator

Calculate the mortgage cost based on the information in your chart. Select “fixed” for rate type, 5% for interest rate, 5 years for interest term, payment frequency – monthly and a 25 year amortization period. Name ______

MEL 4E1 Summative Assessment – Buying a House

a) Log on to the MLS (multiple listing service) website at www.mls.ca

b) Click on ‘residential properties’

c) Type ‘Cobourg’ in ‘Where do you want to look?’

Here’s the scenario

2. You have a secure job in Cobourg that pays $60 000 per year. How much can you afford to pay for PITH if you should not exceed 32% of your gross monthly income? Calculate it here. (4 marks)

3. If your heating will cost $200 per month, what is left for your mortgage payment? That is your target. (2 marks)

4. Fill in “refine your search” on the left side of the page. Remember! Don’t choose too many characteristics or you will not get many houses in your search. Find a house you can afford. Click on the picture to get more details. Print off the page.

NOW…

5. Use the mortgage calculator at the top of the page under the MLS # and fill in the following information.

a) Assume that you will make a down payment of $20,000, you will have a 5% interest rate, 25 year amortization period and a 5 year fixed term. b) What is the monthly mortgage payment? (3 marks)

c) How do you know you can afford it? (4 marks)

END OF PART 1!!!

1. Log on to www.royalbank.com/products/mortgages to access their mortgage centre.

Look at the menu on the left hand side of the page Click on mortgage calculators Click on mortgage payment calculator Click on use this calculator

Assume a $150,000 mortgage at 5% amortized over 25 years with a fixed 5 year term.

Complete the following table. (12 marks)

Payment Amount Amortization Total Interest Savings vs Frequency (years) Cost Monthly Payment Answer these questions. Show your work. (2 marks each)

a) How many years would be shaved off of a mortgage where monthly payments were being made if accelerated weekly payments were made?

b) How much money would be saved if accelerated bi-weekly payments were made instead of bi-weekly payments?

c) Calculate how much money is paid per year for

i) a monthly payment plan

ii) a weekly payment plan

iii) compare the amounts in parts i and ii and explain why you would still save money if you made weekly payments.

3. Now calculate the cost of borrowing for the same mortgage if we change the interest rate. (10 marks)

Complete the table and plot a graph of Cost of Borrowing vs. Interest Rate

Interest Rate Cost of borrowing Based on monthly payments

 Put interest rate on the x-axis  Put cost of borrowing on the y-axis