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?
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.

Answer 1

Answer: b.

Work:
- Max monthly mortgage = 25% of $2,986 = $746.50.
- With 20% down: loan = $163,000 − $32,600 = $130,400.
- 30‑yr at 6.25% → monthly ≈ $803 (> $746.50) so not acceptable.
- 30‑yr at 5.5% → monthly ≈ $741 (≤ $746.50) so this modification would make the loan viable.
- A 15‑yr term would raise the payment, and making the down payment 18% increases the loan amount — both worsen the monthly payment.