FIN 502 Study Guide - Final Guide: Debt Service Ratio, Mortgage Loan, Interest Rate Risk
Document Summary
Debt capacity- determined by our ability to make loan payments based on our current and expected cash flow. Liquidity- ability of a family to meet its debt service payments in the short run. Assets vs cash flow- net assets we own both contribute to our ability to repay debt, direct correlation on our debt capacity. Risk- related to our credit history, variations in our future cash flows and the fact that assets vary over time. Tds of 40%: total debt service ratio= [annual mortgage payments+ property taxes+ 50% annual condos fees +other debt obligations]/ gross family income. Gds of 30%: gross debt service= [pit +50% of condo fees]/annual gross income. Home equity credit line- equity on your home can be used as collateral to secure a line of credit maximum credit lines at 75% of the market value of their home.