Answer:

The correct answer is option B : Change the interest to 5.5%

Step-by-step explanation:

Giselle wants to buy a condo that has a purchase price of $163,000.

She earns $2,986 a month and wants to spend no more than 25% of her income on her mortgage payment.

Means the maximum she will spend is 0.25times2986=746.50 dollars.

She has saved up $33,000 for a down payment.

So, loan amount or principle will be = 163000-33000=130000 dollars

Giselle is considering the following loan option: 20% down, 30 year at a fixed rate of 6.25%.

Lets check the monthly payment for this option:

The EMI formula is:

frac{p*r*(1+r)^{n} }{(1+r)^{n}-1}

p = 130000

n = 30*12=360

r = 6.25/12/100=0.0052083

Putting the values in formula we get:

frac{130000*0.0052083*(1+0.0052083)^{360} }{(1+0.0052083)^{360}-1}

= $800.43

This option is not viable.

So, lets check other options.

1. Change to a 15 year fixed loan means n will be 15*12=180 and rest values will be same.

Putting the values in formula we get,

frac{130000*0.0052083*(1+0.0052083)^{180} }{(1+0.0052083)^{180}-1}

= $1114.66

This is not viable.

b.  Change the interest to 5.5%  

Now r = 5.5/12/100=0.004583

Rest will remain the same and n = 360

Putting the values in formula we get,

frac{130000*0.004583*(1+0.004583)^{360} }{(1+0.004583)^{360}-1}

= $738.095

This is a viable option as EMI is less than $746.50.

C. Change the down payment to 18% down

0.18times163000=29340

So, p = 163000-29340=133660

n = 30*12=360

r = 6.25/12/100=0.0052083

Putting the values in formula we get:

frac{133660*0.0052083*(1+0.0052083)^{360} }{(1+0.0052083)^{360}-1}

= $822.97

This is also not viable.

Therefore, the correct answer is option B : Change the interest to 5.5%