Question

Barrie and Inga Adlington, of Birmingham, England, have just finished putting their three daughters through college. As empty-nesters, they are considering purchasing a vacation home in the United States on a lake because prices have dropped in recent years. The house might also serve as a retirement home once they retire in 6 years. The Adlingtons' net worth is $385,000 including their home worth about $263,000 on which they currently owe $41,000 for their first mortgage, with a $762 per month payment. Their outstanding debts in addition to their mortgage include $12,700 on one car loan ($259 monthly payment), $13,800 on a second car loan ($287 monthly payment), and a $25,500 second mortgage on their home taken out to help pay for their daughters' college expenses ($188 monthly payment). Their income is $100,000.

a.

Calculate the Adlingtons' debt-to-income ratio. Round your answer to two decimal places.

Do the Math 6-2 Buying a Vacation Home Barrie and Inga Adlington, of Birmingham, England, have just finished putting their three daughters through college. As empty-nesters, they are considering purchasing a vacation home in the United States on a lake because prices have dropped in recent years. The house might also serve as a retirement home once they retire in 6 years. The Adlingtons' net worth is $385,000 including their home worth about $263,000 on which they currently owe $41,000 for their first mortgage, with a $762 per month payment. Their outstanding debts in addition to their mortgage include $12,700 on one car loan ($259 monthly payment), $13,800 on a second car loan ($287 monthly payment), and a $25,500 second mortgage on their home taken out to help pay for their daughters' college expenses ($188 monthly payment). Their income is $100,000. a. Calculate the Adlingtons' debt-to-income ratio. Round your answer to two decimal places. 93 % b. Advise them as to the wisdom of borrowing to buy a vacation home at this time. The input in the box below will not be graded, but may be reviewed and considered by your instructor With the debt to income ration being so high, they should not buy a vacation home yet.

Answer 1

Income = $100,000.

Total debt = $41,000 + $12,700 + $13,800 + $25,500 = $93,000.

Debt to income ratio = Total debt / income
= $93,000 / $100,000
= 93%

Since the debt to Income ratio is very high, they should not purchase another house.