EXAMPLE 11-6 Rent or Purchase a Home? EXAMPLE 11-6Rent or Purchase a Home? In this example, we return to the decision problem discussed in the ehapter opener. Is it more economical to purchase or rent a home? Evaluate the economics of renting versus buying a $150,000 home and living in it for five years. Use the data below in your analysis. Rental Option: Rent is $1,200 per month for the first year. The monthly rental fee will increase by 525 for each subsequent year of renting. There is also a $1,200 deposit payable when the lease is signed and refundable when the house is left in good condition. Renter's insurance is $35 per month. Perchase Optsion: A $30,000 down payment is made, so $120,000 will be financed with a ayear mortgage having a 7% annual interest rate. Additional closing costs of S200 are paid at the time of purchase. Property taxes and homeowners insurance total $200 per month, and maintenance is expected to average $50 per month. The resale value of the home after five years is anticipated to be $160,000. The commission paid to the realtor at the time of the sale is expected to be 7% of the felling price. If your personal interest rate is 10% per year (compounded monthly, is it more economical to rent or purchase this home? Examine the sensitivity of the decisiorn to changes in the resale value of the home, the mortgage rate, and the length of ownership. continued on next slide