What is the mortgage debt ratio for a potential borrower who earns $72,000 per year if she applies for a mortgage that requires principal and interest payments of $1,800 per month, the property taxes of the house she wants to buy are $400 per month, and the property insurance is $150 per month. 30% 27% 39% 40%
What is the mortgage debt ratio for a potential borrower who earns $72,000 per year if she applies for a mortgage that requires principal and interest payments of $1,800 per month, the property taxes of the house she wants to buy are $400 per month, and the property insurance is $150 per month. 30% 27% 39% 40%
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 23PROB
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Transcribed Image Text:Assume that you can get an interest-only mortgage with no money down. You are
considering to buy a house or to rent an apartment. The apartment rents for $900 per
month. You estimate the monthly property tax to be $200 and the monthly interest
on your interest-only loan to be $750. Your tax rate is 20%. You also have to pay $75
per month in maintenance costs and $125 per month in property insurance if you
own. Should you buy the house or rent the apartment based on these numbers,
assuming that you cannot make a profit from the sale of the property? (Also, ignore all
emotional factors and assume that you can itemize all your deductions.)
You are indifferent because the two options cost exactly the same per month.
You should rent because the $900 rent is less than the monthly cost town.
You should rent because the $900 rent is more than the monthly cost to own.
You should buy because buying is financially always the better option.
re
Transcribed Image Text:What is the mortgage debt ratio for a potential borrower who earns $72,000 per year
if she applies for a mortgage that requires principal and interest payments of $1,800
per month, the property taxes of the house she wants to buy are $400 per month, and
the property insurance is $150 per month.
30%
27%
39%
40%
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