Credit Application
Capstone Report for CAN FFT by Brian Chu, 2025 Jan
Table of Contents
- Table of Contents
- References
- Calculations
- Character
- Credit
- Capacity
- Capital
- Collateral
- Conditions
- Conclusion
References
- Case Study Information (Local Copy)
- Case Study Information (CAN Google Class copy)
- Finance Calculations - GDSR
- Finance Calculations - TDSR
Calculations
Total Income
| Name | Calculations | Income |
|---|---|---|
| Romeo Adamos | $4004.92 x 26 / 12 | |
| Sarah Adamos | $1,184.38 x 26 / 12 | |
| Total | ||
Housing Liabilities
| Item | Amount |
|---|---|
| Rent | |
| Tenant Insurance | |
| Mortgage | |
| Water & Garbage | |
| Power | |
| Total |
Heat
| Item | Amount |
|---|---|
| Gas | |
| Total |
Insurances
| Item | Amount |
|---|---|
| Tenent Insurance | |
| Car Insurance - Romeo's Subaru | |
| Car Insurance - Sarah's Dodge Dart | |
| Home Insurance | |
| Total |
Revolving Debts
| Item | Amount |
|---|---|
| Joint Credit Card Maximum | |
| Sarah Credit Card Maximum | |
| Total | |
| 3% of Total |
Other Debts
| Item | Amount | |
|---|---|---|
| Personal Loan of $24,000.00 - Romeo | $320.0 x 26 / 12 | |
| Car Loan - Romeo's Subaru | ||
| Car Loan - Sarah's Dodge Dart | ||
| Total per month | ||
Assets
| Asset | Value |
|---|---|
| Romeo TFSA | |
| Romeo Pension | |
| Sarah spousal RRSP | |
| Sarah life insurance policy on her dad | |
| Romeo 2018 Subaru Crosstrek | |
| Sarah 2014 Dodge Dart | |
| Total |
Spendings
| Activity | Calculations | Cost |
|---|---|---|
| Charlotte dance lessons | $235 per month x 10 months | |
| Oliver Sport Ball | $200 per month x 6 months | |
| Swimming and piano lessons | $300 per month x 12 months | |
| Romeo Trip to Greece | ??? | |
| Sarah Volunteer Trip | ??? | |
| Annual Total | ||
GDSR
GDSR = ( Housing Liabilities + Heat ) / Total Income =
( + ) / =
Max possible housing Liabilities = 39% x - =
TDSR
TDSR = ( Housing Liabilities + Heat + 3% of Revolving Debts Maximum + Other Debt ) / Total Income
=
( + +
+ ) / =
Max possible housing Liabilities = 44% x - +
+
=
New Mortgage
= ( + + + ) / =
New Mortgage
Romeo and Sarah's objective is to purchase a home of their own. Give the following assumptions about the mortgage they can get with the Maximum Possible House Liability derived from the TDSR above, They can buy a house with the price shown below once they save up the downpayment.
| Assumptions | ||
|---|---|---|
| Interest Rate | 5% | Semi-Annaully |
| Down Payment | 20% | |
| Armotization | 25 years |
Formula Calculation for the possible mortgage.
PV = PMT ( (1+r)^n - 1 ) / ( r (1+r)^n )
= $3,114.00 x 6 ( ( 1 + 5% / 2 )^ (25 x 2) - 1 ) / ( 5 % / 2 ( 1 + 5% / 2 )^ ( 25 x 2 ) ) )
= $529,921.43
House Price = PV / ( 1 - Down Payment Percentage ) = PV / ( 1 - 20% ) = $662,401.79
Down Payment = $662,401.79 - $529,921.43 = $132,480.36
BAII Plus Calculation parameters and results.
I/Y = 5
P/Y = 12
C/Y = 2
N = 25 X 12 = 300
PMT = - $3,114.00
-----------------------
PV = $535,414.94
House Price = PV / ( 1 - Down Payment Percentage ) = PV / ( 1 - 20% ) = $669,268.68
Down Payment = $669,268.68 - $535,414.94 = $133,853.74
| Max Possible New Mortgage | |
|---|---|
| Downpayment | $133,853.74 |
| House Price | $669,268.68 |
Character
Borrower's attitude towards credit obligations.Romeo has type 1 diabetes. He is also an avid skier and scuba diver. Even though he has a high credit score of 750, his risky life style is a concern when it comes to Credit Application. Sarah is a smoker and has a sister with cancer with less than one year of life expectancy. Sarah is also likely to adapt her sister's son once she pass away on cancer.
Romeo and Sarah's spending habit on their kids' activities are getting expensive. There is a total of plus per year.
According to their billing, they are also paying for Home Insurance when they are renting. It is not clear if this is a mistake or they actually have a secondary home.
Credit
Borrower's history with financial obligations, Credit report.Romeo has a credit score of 750 (Very good credit) and has never missed a payment in the last 7 years, which is a very good news. Sarah has a credit score of 698 (Good credit). See Credit Scores chart for more details.
Capacity
Borrower's financial ability to meet credit obligations.Romeo and Sarah's household GDSR is while the maximum GDSR is 39% that the bank would allow before borrowing more money. Their household TDSR is while the maximum TDSR is 44% that the bank would allow before borrowing more money. According to these 2 ratios, their hosuehold can take on more debt.
Capital
Borrower's assets or net worth.Romeo and Sarah has a total asset of $. They are consisted of their cars, life insurance, TFSA saving, and pension. See the Assets table for more details.
Collateral
Valuable asset that is pledged to ensure loan payments.Romeo and Sarah can use their TFSA, RRSP, and spousal RRSP as Collateral for their future. Although, Sarah is named the beneficiary of her dad's life insurance, it cannot be used as a collateral because it's not clear if Sarah is the irrevocable beneficiary. It is also not clear when her dad will die to receive the death benefit. Therefore, it is not suitable to be used as a collateral.
Conditions
The general economic conditions that can affect borrower's ability.The general economic conditions in Canada are not so great at the time of this writing (2025 Jan 14). The Canadian dollar is historically low against USD at below 0.70 USD per CAD. The interest rate is dropping much faster than our US neighbor. This is a signal that Canada is in recession at least unofficially.
Conclusion
Base on the C's of credit application, Romeo and Julia are qualified to buy a house at about $650,000.00 price with 20% downpayment of about $130,000.00. Their TFSA savings of $22,345.00 is far below the downpayment required. Therefore, they will still need to save more at a faster rate. They will need to reduce their spending on their kids, trips, etc. to reach the goal.