Reference no: EM132683824

Barrie and Inga Adlington, of Belle River, have just finished putting their three daughters through college. As empty-nesters, they are considering purchasing a vacation home in Collingwood on a lake because prices have dropped in recent years. The house might also serve as a retirement home once they retire in 6 years. The Adlingtons' net worth is $383,000 including their home worth about $265,000 on which they currently owe $43,000 for their first mortgage, with a $778 per month payment. Their outstanding debts in addition to their mortgage include $12,500 on one car loan ($256 monthly payment), $13,700 on a second car loan ($287 monthly payment), and a $25,000 second mortgage on their home taken out to help pay for their daughters' college expenses ($187 monthly payment). Their income is $100,000.

a) Calculate the Adlingtons' debt-to-income ratio.

b) Advise them as to the wisdom of borrowing to buy a vacation home at this time.

2) Zachary Porter of Ancaster, Ontario, is contemplating borrowing $10,000 from his bank. The bank offers rates of:

6.5 percent for 3 years

7 percent for 4 years

8 percent for 5 years.

a) Use an online calculator or the A = P(1 + i)^n formula, to calculate the finance charge

b) Once you calculate the finance charge, determine the monthly payment for these three options.