- Budgeting
- Cash Management
- Consumer and Mortgage Loans
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #1 Answers
1. Front-end Ratio Calculations at 6.5%
PITI / Gross Income
Annual Income (60,000 /12) 5,000
$5,000 times 0.28% 1,400
Real estate tax (T) and insurance payments (I) - 200
Maximum Monthly Mortgage Payment of
Principal (P) and Interest (I) 1,200
Set 6.5% = I, Pmt = 1200, N=30*12, PV
Maximum Amount Bank will lend $189,853
2. Back-end Ratio Calculations at 6.5%
(PITI+ Debt expenses) / Gross Income
Annual Income 5,000
$5,000 * 36% 1,800
Real estate tax and insurance payments (I) 200
Monthly debt payments: Car payment 270
Student Loan 50
Maximum Monthly Principal and Interest 1,280
Set 6.5% = I, Pmt = 1280, N=30*12, PV
Maximum Amount Bank will lend $202,510
Applications:
Since the bank will generally lend the lesser of the two ratios, they would likely be allowed $189,852.98.
