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COST OF RENTING

COST OF RENTING

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter6: Using Credit
Section: Chapter Questions
Problem 3FPE
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A. COST OF RENTING 1. Annual rental costs (12 x monthly rental rate of 850) RENT - OR - BUY ANALYSIS 2. Renter's insurance 3. Opportunity cost of security deposit 1,000 x after-tax savings rate 0.040 Total costs of renting (line A.1 + line A.2 + line A.3) B. COST OF BUYING 1. Annual mortgages payments (Terms: 120,000.00, 360 months 6%) (12 x monthly mortgage payment of 719) 2. Property taxes (2.0% of the price of the home) 3. Homeowner's insurance (0.5% of the price the of home) 4. Maintenance (0.8% of the price of the home) 5. After-tax cost of interest on down payment and closing costs (34,500 x 4.0% after-tax rate of return) 6. Total costs (sum of lines B.1 through B.5 Less: 7. Principal reduction in loan balance (see note below) 8. Tax savings due to interest deduction (Interest portion of mortgage payments (7,200 x tax rate 25% 9. Tax savings due to property tax deductions (Line 8.2 x tax rate of 25%) 10. Total deductions (sum of lines B.7 through B.9) 11. Annual after-tax cost of homeownership (Line B.6-line B.10 12. Estimated annual appreciation in the value of the home (2% of the price of the home) Total cost of buying (line 8.11-line B.12) 10,200 600 40 8,634 3,000 750 1,200 1,380 1,434 1,800 750 10,840 14,964 3,984 10,980 3,000 7,980
Transcribed Image Text:A. COST OF RENTING 1. Annual rental costs (12 x monthly rental rate of 850) RENT - OR - BUY ANALYSIS 2. Renter's insurance 3. Opportunity cost of security deposit 1,000 x after-tax savings rate 0.040 Total costs of renting (line A.1 + line A.2 + line A.3) B. COST OF BUYING 1. Annual mortgages payments (Terms: 120,000.00, 360 months 6%) (12 x monthly mortgage payment of 719) 2. Property taxes (2.0% of the price of the home) 3. Homeowner's insurance (0.5% of the price the of home) 4. Maintenance (0.8% of the price of the home) 5. After-tax cost of interest on down payment and closing costs (34,500 x 4.0% after-tax rate of return) 6. Total costs (sum of lines B.1 through B.5 Less: 7. Principal reduction in loan balance (see note below) 8. Tax savings due to interest deduction (Interest portion of mortgage payments (7,200 x tax rate 25% 9. Tax savings due to property tax deductions (Line 8.2 x tax rate of 25%) 10. Total deductions (sum of lines B.7 through B.9) 11. Annual after-tax cost of homeownership (Line B.6-line B.10 12. Estimated annual appreciation in the value of the home (2% of the price of the home) Total cost of buying (line 8.11-line B.12) 10,200 600 40 8,634 3,000 750 1,200 1,380 1,434 1,800 750 10,840 14,964 3,984 10,980 3,000 7,980
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