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.



Please select the best answer from the choices provided


A
B
C
D

Answer 1

B

With 20% down the loan is 163,000 - 32,600 = 130,400. At 30 yrs and 6.25% the monthly payment ≈ $803, which exceeds 25% of her income (0.25·2,986 = $746.50). If the rate is 5.5% (30 yr, same loan), the payment ≈ $740, which is below $746.50, so 5.5% makes it viable.