Angela Wu is considering purchasing a $350,000 two bedroom condominium and living in it for 5...

  

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Angela Wu is considering purchasing a $350,000 two bedroom condominium and living in it for 5 years. She has saved $100,000, which can be used for down payment and for closing costs. She will take out a mortgage loan at an interest rate of 4% to be amortized over 25 years. Apart from monthly mortgage payments other homeownership costs are estimated as follows: $12,000 $3,000/year $500/year $6,000/year Closing costs (legal, moving, land transfer tax, etc.) Property Taxes Insurance Premium Condominium maintenance fee Alternatively, she can rent the condominium for $1,700/month. Monthly rent of $1,700 includes property taxes, insurance, and condominium fees. She can invest her savings to earn an after tax rate of return of 2% p.a. It is expected that rent, property taxes, insurance premium, and condominium maintenance fees, will increase at 2% p.a. Real estate prices are expected to rise at 3% per annum. Should she buy or rent? Angela Wu is considering purchasing a $350,000 two bedroom condominium and living in it for 5 years. She has saved $100,000, which can be used for down payment and for closing costs. She will take out a mortgage loan at an interest rate of 4% to be amortized over 25 years. Apart from monthly mortgage payments other homeownership costs are estimated as follows: $12,000 $3,000/year $500/year $6,000/year Closing costs (legal, moving, land transfer tax, etc.) Property Taxes Insurance Premium Condominium maintenance fee Alternatively, she can rent the condominium for $1,700/month. Monthly rent of $1,700 includes property taxes, insurance, and condominium fees. She can invest her savings to earn an after tax rate of return of 2% p.a. It is expected that rent, property taxes, insurance premium, and condominium maintenance fees, will increase at 2% p.a. Real estate prices are expected to rise at 3% per annum. Should she buy or rent?

Answer rating: 100% (QA)

Cost of buying the house Year1 Year2 Year3 Year4 Year5 Net gainloss Closing costs 1200000 ... View the full answer