what are some other expenses they will have in purchasing this house

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Susan and Dave, two recent VIU graduates are interested in buying their first property in

Nanaimo. They have saved up $30,000 and are looking at buying a property in the $800,000

range and they have been pre-approved for a $750,000 mortgage. They each also plan on using

the maximum withdrawal from the RRSP homebuyers plan where Susan has $200,000 in her

RRSP and Dave has $70,000. Susan works as a realtor and has a gross income of $150,000 per

year and Dave works in construction earning $85,000 gross per year. The property they are

buying needs to have rental suite as they want to make sure they can generate some additional

rental income to help fund their expenses and retirement goals. They expect to generate $1,500

per month in rental income. They will own the property at joint tenants with rights of

survivorship.

Dave also needs a new truck for work and he needs help deciding if he should lease or finance

the truck to maximize tax savings. He plans on using the truck 100% for work as he has another

car for personal use.

Please assume a mortgage amortized over 25 years at a variable interest rate of 1.5%

compounded semi-annually. For the truck financing rates the bank will offer a seven year loan

at 6% annual compounded rate.

1. What is the maximum down payment they can make towards a house? (1 mark)

If this down payment represents the minimum they can put down, what is the maximum

house purchase price based on only meeting this requirement? (1 mark)

2. Based on a gross debt to service ratio of 32%, what is the maximum mortgage they

can qualify for assuming annual property taxes of $3,600 and heating costs of $2,800

for the year? (4 marks)

3. What are some other expenses they will have in purchasing this house? (4 marks)

4. If they generate $1,500 per month in rental income from a suite that represents 25%

of the total house area, what is the net amount subject to taxes assuming the

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