Question

john smith has been approved for a $30,000 second mortgage with a 1-year term, 10-year amortization at 12.5% compounded semi-annually and monthly mortgage payments of $433.66. he has a first mortgage with an outstanding balance of $220,000 (down from $230,000 when he first took out the mortgage) with bi-weekly payments of $700. the second mortgage is going to consolidate his credit cards for which he currently pays $390 per month. he has a car lease of $360 per month, annual car insurance payments of $2,300, and monthly home insurance premiums of $150. his property taxes are $3,500 per year and it costs $75 per month to heat his home, which has been appraised at $350,000. john earns $78,000 per year as a mechanic. calculate the ltv ratio on the first mortgage, and the gds and tds ratios for this transaction.

Answer 1

The Loan to Value (LTV) ratio on the first mortgage is 62.86%. The Gross Debt Service (GDS) ratio is 1.22%. The Total Debt Service (TDS) ratio is 1.76%.

Step-by-step explanation:

To calculate the Loan to Value (LTV) ratio, we need to divide the outstanding balance on the first mortgage by the appraised value of the property and multiply by 100. In this case, the outstanding balance on the first mortgage is $220,000 and the appraised value of the property is $350,000. Therefore, the LTV ratio on the first mortgage is:

LTV ratio = (Outstanding balance / Appraised value) * 100

LTV ratio = (220,000 / 350,000) * 100

LTV ratio = 62.86%

To calculate the Gross Debt Service (GDS) ratio, we need to add up all the monthly housing expenses (mortgage payments, property taxes, home insurance, and heating) and divide by the borrower's gross annual income, and multiply by 100. In this case, the monthly housing expenses are:

Mortgage payments = $433.66

Property taxes = $3,500 / 12 = $291.67

Home insurance = $150

Heating = $75

Total monthly housing expenses = $433.66 + $291.67 + $150 + $75 = $950.33

And the borrower's gross annual income is $78,000. Therefore, the GDS ratio is:

GDS ratio = (Monthly housing expenses / Gross annual income) * 100

GDS ratio = ($950.33 / $78,000) * 100

GDS ratio = 1.22%

To calculate the Total Debt Service (TDS) ratio, we need to add up all the monthly debt payments (first mortgage, second mortgage, credit card payments, car lease, car insurance, and other debts) and divide by the borrower's gross annual income, and multiply by 100. In this case, the monthly debt payments are:

Second mortgage payments = $433.66

Credit card payments = $390

Car lease = $360

Car insurance = $2,300 / 12 = $191.67

Other debts = $0 (not mentioned in the question)

Total monthly debt payments = $433.66 + $390 + $360 + $191.67 = $1,375.33

Therefore, the TDS ratio is:

TDS ratio = (Monthly debt payments / Gross annual income) * 100

TDS ratio = ($1,375.33 / $78,000) * 100

TDS ratio = 1.76%