Question

Jane Doe earns $58,800 per year and has applied for a(n) $99,000, 30-year mortgage at 9 percent interest, paid monthly. Property taxes on the house are expected to be $6,900 per year. If her bank requires a gross debt service ratio of no more than 30 percent, will Jane be able to obtain the mortgage

Answer 1

GDS ratio is 28.12% and is less than the maximum of 30%,hence Jane would be able to get the mortgage

Step-by-step explanation:

The gross debt service ratio is a measure of the ease with which mortgage holders can repay their housing loan.It compares the yearly property obligations with the yearly income of the mortgage holder.

Gross Debt Service ratio=yearly obligations/yearly income

yearly obligations=property taxes+yearly mortgage repayment

property taxes is $6,900

mortgage repayment=pmt(rate,nper,-pv,fv)

rate is 9%

nper is the duration mortgage of 30 years

pv is the present value of mortgage

fv is future value of mortgage,it is not known,hence taken as zero

=pmt(9%,30,-99000,0)=$9,636.30

yearly obligations=$6,900+$9,636.30=$ 16,536.30

GDS = 16,536.30/58,800=28.12%