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Calculate the maximum cost of the property

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You have $50,000 saved that you would like to invest in a rental property. The property would generate $1,000 of gross monthly rent and incur $400 in monthly expenses comprising of strata fees, property taxes, insurance & maintenance. A bank is willing to provide a standard 25-year mortgage at the current rate of 2.5% APR, but with the following two restrictions: Loan-to-Value (LTV) no greater than 80% and Debt Service Ratio (DSR) no less than 125%. If the property costs $160,000, then can you afford it? What if the bank offers 30-year mortgage but at 3% APR - does your answer change? In each case, calculate the maximum cost of the property that you can afford.

Reference no: EM132785581

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