10. Rent versus buy analysis - Part 2 Which is betterz to rent or to buy? The decision of whether to rent or buy housing is a personat decision that is based on both your lifestyle and your finances. While most financial experts argue that the financial aspect of the decision is important, it is aiso important not to base your rent-or-buy decision solely on the numbers. Your personal needs and housing market conditions are important. However, it is still necessary to perform the financial analysis. Megan and her husband are trying to decide whether to rent or to purchase a new condominium. After looking for several months, they ve narrowed their cholce down to one particular unit, and the builder is willing to lease or sell-depending upon the preference of the buyer: To perform a rent-on-buy analysis, Megan and her husband have collected the following information: - If they rent, the builder will require monthly rental payments of $1,100 and a security deposit equal to two months of rent. - Since they want to be protected against the possible loss of their possessions, they will purchase a renters' policy of $200 every six months, while a more comprehensive homeowners' policy will cost 0.5% of the home's value per vear: - Money used to fund the unit's security deposit could otherwise be invested to earn 5% per year after taxes. Funds expended for a home's down payment and closing costs also incur an opportunity cost. - If the unit is purchased, it will cost $175,000 and will require a 20% down payment. The losn will carry an interest rate of 696 , a term of 30 years, and monthly payments of $839. The closing costs as5ociated with the unit's mortgage will be $3,500. - The property taxes and the maintenance and repair expenses on the unit are estimated to be 2% and 196 of the unit's total price, respectively. - Your ordinary income is taxed at the rote of 28%, and you'll be wiling to itemize your tax deductions in the event that you purchase your new home. - Financial publications report that home values are expected to increase by 396 this year due to inflation. Complete a rest-on buy analysis worksheot to determine the total cost of renting and the fotal cost of purchasing Megan and her husband'y prospectrve house. To complefe the worksheet, enter the appropriate values in their corresponding blanks and round each value to the aeaveit whole dollar. Based on this analysis, Megan and her husband should; Purchase the home, as the total cost of purchasing is less than the cost of renting. Rent the home, as its total cost is less than the total cost of purchasing. Purchase the home, as the cost of purchasing is greater than the cost of renting