Question 17 • 26-27 Ignite Technical Math-Financial Math - MA2007
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
A
Change to a 15 year fixed loan
B
Change the interest to 5.5%
C
Change the down payment to 18% down
D
None. This is a viable option for Giselle.
Explanation
Giselle’s maximum mortgage payment is 25% of $2,986, or $746.50 per month. With 20% down, she borrows $130,400; at 6.25% for 30 years, the monthly principal-and-interest payment is about $803, which is too high. Lowering the rate to 5.5% reduces that payment to about $741, within her limit, so changing the interest rate makes the loan viable.
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