Kayla Thompson is married and currently renting an apartment for $725 per month and paying $275 annually
Question:
Kayla Thompson is married and currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. Her landlord required a $1,000 security deposit on the apartment. She just found a small townhouse that she can buy for $285,000. She has enough cash for a $10,000 down payment and $4,000 in closing costs. Her bank is offering 30-year mortgages at a 6 percent annual rate. Kayla estimated the following costs as a percentage of the home’s price: property taxes, 2.5 percent; homeowner’s insurance, 0.5 percent; and maintenance, 0.7 percent. She is in the 24 percent tax bracket, has an after-tax rate of return on invested funds of 4 percent, and expects the townhouse to appreciate 2 percent per year. Using Worksheet 5.2, calculate the cost of each alternative and recommend the less costly option—rent or buy—for Kayla.
Step by Step Answer:
Personal Financial Planning
ISBN: 9780357438480
15th Edition
Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk