1. The Dumonts are in the early years of the accumulation of wealth stage of the financial life cycle. During this longest stage of the life cycle, the Dumonts will establish their lifestyle and build a foundation for the two later stages. This phase is characterized by:
• Family formation.
• Goal setting.
• Home buying.
• Debt planning.
• Savings accumulation (emergency fund, home down payment, children’s education fund, and retirement).
• Insurance planning (medical, …show more content…
a. Monthly income (annual income divided by 12)
b. Times 0.28: Percentage of PITI (Principal, interest, taxes, and insurance) to your monthly gross income that lenders will lend in the form of a mortgage loan
(multiply line a by 0.28) x 0.28
c. Less: Estimated monthly real estate tax and insurance payments
d. Equals: Your maximum monthly mortgage payment using the 28% of PITI ratio
To Determine the Maximum Mortgage Loan Level Using the Maximum Monthly
Mortgage Payments as Determined Using the PITI Ratio (line d):
Step 1: Monthly mortgage payment for a $10,000 mortgage with a 30 year maturity and a 7.0 % interest rate (using Table 8.1)
Step 2: Maximum mortgage level = maximum monthly mortgage payment (line d) divided by the monthly mortgage payment on a $10,000, 7.0 %, 30 year mortgage (step 1 above) times $10,000 = ($1,578 / $66.53) x $10,000
Worksheet for Calculating the Maximum Monthly