Jen and David have just purchased a new house at a price of $430,000. They have a down payment of 25% of the total house price, made up of 40% of their own savings and an interest-free loan from relatives (e.g., parents) for the balance of the down payment. The current prime rate at major Canadian banks is 2.45%. Martha and Henry's home bank— the Royal Bank of Canada—has offered them a variable mortgage rate of prime plus a quarter percent with a lump sum payment option of any amount during the mortgage loan period. TD Canada Trust has offered them a variable rate mortgage of a quarter percent below the prime rate, with the condition that the total lump sum payment option is limited to 15% of the loan balance at the beginning of the year. How would you advise Jen and David regarding their decision? Present sound financial analysis based on the information given. You may need to work through different scenarios to reach your conclusions.

Answer rating: 100% (QA)

ANSWER The first thing to consider is the interest rate The Royal Bank of Canada is offering a varia... View the full answer