The Parker family would like your help in revising their financial plan.  Review the Parker family’s financial and personal information before answering the following questions.
DEBT MANAGEMENT ANALYSIS
1. Given the Parker family’s amount of debt (including all liabilities), do these debts hinder the Parker’s ability to reach their financial goals?  Do you recommend the Parker family pay off these debts before funding all or some of their goals?  If yes, explain how doing so will help the Parker family reach their financial goals faster?  If no, explain why doing so will not help the Parker family reach their goals? 2. As you know the Parker family has accumulated quite a bit of credit card debt and has set a goal to pay it off within one year. Using the 2016 expenses from your case study, establish a plan for the Parker family to reach this goal that includes the order in which the credit cards are to be paid off, the length of time it will take to pay off each credit card, and the total interest paid from the beginning of the plan until the debt is eliminated.a. According to the plan you established, can the Parker family reach their goal of paying off their debt in one year?b. Should the Parker family pay off their credit cards before they purchase a home? 3. Can the Parker family achieve all of the stated goals given their current income and expenditure patterns?  If not, what specific recommendations would you make to help them balance their budget and/or achieve their goals?  These recommendations could focus on changes in their income, expenditures, and/or goals.
HOUSING ANALYSIS
One of the Parker family’s short range goals is to buy a home. Given the Parker family’s budget, they wants to look at anything that could save them money. The Parker family has started house hunting and they think that they can find an acceptable property in the $200,000 price range. The lenders they have spoken with typically require only a 10% down payment; however, the Parker family can make a larger down payment from the equity in their current home. They have shopped for home mortgages and narrowed their choices to:
30-year fixed-rate mortgage 30-year adjustable-rate mortgage (ARM) 5/1?3.375% interest with 2 discount points ?3.6% interest with 2 discount points?other closing costs of $6,600 (includes a 1% loan origination fee) ?other closing costs of $7,000 (includes a 1% loan origination fee)?monthly payments ?2.0% annual interest rate cap (meaning the interest rate can increase 1% per year until the cap) ?5.0% overall interest rate cap (meaning the interest rate can increase to a total of 8.6% over the life of the loan). ?monthly payments    The Parker family expects the following additional costs and/or changes in expenditures associated with the purchase and maintenance of this house:• Property taxes of 2.0% of the house value ($4,000/year)• Homeowners insurance of $700/year                                        • Private mortgage insurance of $225/year (required if he makes a down payment of less than 20%)• Maintenance of 1.0% of the house value ($2,000/year)• Utility expenditures (gas, electricity, and water) of $100/month increase
The Parker family expects to live in this house at least 5 years.
4. Compare and evaluate the two mortgages for the Parker family.a. Assuming the Parker family makes a 10% down payment on a $200,000 house, what would the front-end costs and the monthly payments be for principal and interest (P &I) on each of the above two mortgages (remember that the amount of the mortgage is the cost of the house minus the down payment)?  When figuring out the front end costs, include all of the costs regardless of the source of the money paying for them.  Also note that the 1% loan origination fee is already included in the stated closing costs, so don’t add it in again.b. How much could the monthly payments for principal and interest go up on the ARM after the first year?  Over the life of the loan?  c. Keeping in mind their financial situation and risk tolerance, which mortgage would you recommend for the Parker family?  Why?
5. What are the positive and the negative aspects of making a larger-than-required down payment given the Parker’s financial circumstances?  How much would you recommend the Parker family put down? Why?
6. Will the Parker family be able to qualify for the 3.375% fixed-rate mortgage if the lender applies the following two affordability ratios?• Monthly mortgage payments cannot exceed 30% of the borrower’s monthly before-tax income, and• Total monthly debt payments cannot exceed 38% of this same monthly before-tax income.
In figuring if the Parker family will qualify, use all of their 2016 income. Total monthly debt payments include all installment loan payments and the current credit card payments in addition to the house payment.
The amount of their monthly house payment will be the sum of the following:o Monthly payment for principal and interesto 1/12 of the annual property taxeso 1/12 of the homeowner’s insurance premiumo 1/12 of the annual private mortgage insurance premium