1377 Words6 Pages

Problems
Question 1
A few years ago, Michael Tucker purchased a home for $100,000. Today the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming Michael can borrow up to 80 percent of the market value of his home, what is the maximum amount he can borrow? 80% of market value ($150,000×80%) $120,000
(-) outstanding mortgage loan $ 50,000 $ 70,000
∴ Maximum home equity loan Michael can borrow is $ 70,000.
Question 2
Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for Visa, MasterCard and Discover cards are $35, $30 and $20 respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? Explain.
Louise’s debt payments-to-income ratio
=Monthly Debt PaymentsNet Monthly Income ×100%
=$30+$35+$20+$285$2,000-$400-$160-$80 ×100%
=27.21%
∴ Louise’s debt payments to income ratio are $370 to $1360, or 27.21 percent. This ratio exceeds the recommended 20 percent figure, which shows that she does not living within her means and was overextended. The debt payment has become a burden to her with her current net income. Her maximum monthly loan and credit card payments should not be over $272, which is the 20 percent of her net income.
Question 3
Robert Thumme owns a $140,000 townhouse and still has an unpaid mortgage of $110,000. In addition to his mortgage he has the following liabilities:
Visa | $565 | MasterCard | $480 | Discover Card | $395 | Education Loan | $920 | Personal Bank Loan | $800 | Auto Loan | $4,250 | Total | $7,410 | | |
Robert’s net worth (not including his home) is about $21,000. This equity is

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