The repayment of home loan in future

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Mrs Smith has residual income of $48,000 pa which she can put towards the repayment of a home loan in the future. Mrs. Smith's Bank insists that she needs to set aside a buffer of 30% of this amount in case interest rise or emergencies occur. Assume annual compounding for the following scenarios

1. If the current Fixed interest rate is 3.5% and the term is for 30 years, how much is his bank able to lend to him? Use annual compounding in your calculations 2 marks

2. Assume that Mrs Smith finds a studio apartment for $380,000 that she is willing to buy. What would her annual minimum repayment be?

3. Would this increase or decrease her buffer and to what percentage? Assume the same loan term and 20% deposit finance.

Reference no: EM133239966

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