Difference between the monthly Monthly "savings" are invested Monthly "savings" are invested payments und er the rental option in a fund caming annuat in a fund carning annual interest and purchase option Exercise 4 - Renting vs. buying a house: of4%, compounded monthly. Future value mulsipliers (in cash you are not using financia! caleulator er exce: r-30,-4% 56.085 Of 4%, compounded monthly. You are faced with the decision to purchase a new home that will serve you for the next 30 y ears, or rent a similar home. The home you are interested in costs S1 million. Annual real estate taxes are S9,600 Alternatively, monthly rental payments are $3,500 with no additional fees In addition, you have $250,000 in cash which you saved. This implies you will need a $750,000 mortgage. The mortgage will be paid monthly, at the end of every month over a period of 30 years. Inarest is compounded monthly. Annual interest rate is 3% annually -360,-0.33% -)694.049 31.496 Below is a table showing various factors that may have a financial impact The ultimate goal of the exercise is to determine which option (renting or baying) is cheaper. The requirements below will guide you towards that goal. Answer all requirements Description $250,000 savings Rental option Will be invested in a fund Purchase option Would be used for down I. Determine the monthly mortgage payments on the $750,000 mortgage (round to the nearest S) generating 8% expected returns annually, The interest is | payment on the house. 2. What is the monthly payment on real estate taxes? $9,600 annual real estate taxes NA. Included in the rent Paid in monthly installments at the end of every month You are getting $750,000, which Under the purchase option, what is total payment every month for the next 30 years (sum your answers to requirements 1 and 2 above)? $750,000 mortgage NA. will be paying immediately you You will need to make monthly payments at the end of every month, for 30 years. Interest rate is 3% (annually) You will need te calculale the monthly 4. The rental payment is $3,500 monthly. Under the rental option, the difference between the cost you got in requirement (3) and the $3,500 rental payments is additional savings. Calculate the difference between the value you got in requirement (3) and S3,500, and multiply it by the correct multiplier to get the future value of these monthly savings in 30 years (round to the nearest s). 5. Present valwe uripliers (in case you are not using financial calculator or excel; m-12, i-3% 9.654 Under the rental option the $250,000 you have in savings are going to be invested. Calculate the future value of the S2 50,000 in 30 years (expected return is 8%, compounded annually, round to the nearest S) -360,-0.25% 237.189 6. The answers to (4) and (5) inform us on the amount of money we will have in 30 years under the rental option. This includes the future value of $250,000 invested, as well as the diff erence in monthly cash payouts, which are invested. To get the future value of total savings under the rental option, please sum the values you got in requirements (4) and (S) above -12,-0.25%-) 11.807 $3,500 rent expense House value appreciation Broker fee You need to pay $3,500 at the end NA of every month for 30 years NA 7. Now we need to calculate the amount we can get for selling the house in 30 years The price of 3% annually. C on pounding is on an annual basis 4% of the fair value of the house at the time of sale (after 30 the house is $1,000,000. The value of the bouse appreciates by 3% every year. Calculate the value of the house in 30 years. NA 8. When selling the house, the broker charges a 4% fee on the selling price. How much money will you get for selling the house in 30 years, after the broker took their cu? 9. Based on the above, is it cheaper to buy a house or rent one? Explain Difference between the monthly Monthly "savings" are invested Monthly "savings" are invested payments und er the rental option in a fund caming annuat in a fund carning annual interest and purchase option Exercise 4 - Renting vs. buying a house: of4%, compounded monthly. Future value mulsipliers (in cash you are not using financia! caleulator er exce: r-30,-4% 56.085 Of 4%, compounded monthly. You are faced with the decision to purchase a new home that will serve you for the next 30 y ears, or rent a similar home. The home you are interested in costs S1 million. Annual real estate taxes are S9,600 Alternatively, monthly rental payments are $3,500 with no additional fees In addition, you have $250,000 in cash which you saved. This implies you will need a $750,000 mortgage. The mortgage will be paid monthly, at the end of every month over a period of 30 years. Inarest is compounded monthly. Annual interest rate is 3% annually -360,-0.33% -)694.049 31.496 Below is a table showing various factors that may have a financial impact The ultimate goal of the exercise is to determine which option (renting or baying) is cheaper. The requirements below will guide you towards that goal. Answer all requirements Description $250,000 savings Rental option Will be invested in a fund Purchase option Would be used for down I. Determine the monthly mortgage payments on the $750,000 mortgage (round to the nearest S) generating 8% expected returns annually, The interest is | payment on the house. 2. What is the monthly payment on real estate taxes? $9,600 annual real estate taxes NA. Included in the rent Paid in monthly installments at the end of every month You are getting $750,000, which Under the purchase option, what is total payment every month for the next 30 years (sum your answers to requirements 1 and 2 above)? $750,000 mortgage NA. will be paying immediately you You will need to make monthly payments at the end of every month, for 30 years. Interest rate is 3% (annually) You will need te calculale the monthly 4. The rental payment is $3,500 monthly. Under the rental option, the difference between the cost you got in requirement (3) and the $3,500 rental payments is additional savings. Calculate the difference between the value you got in requirement (3) and S3,500, and multiply it by the correct multiplier to get the future value of these monthly savings in 30 years (round to the nearest s). 5. Present valwe uripliers (in case you are not using financial calculator or excel; m-12, i-3% 9.654 Under the rental option the $250,000 you have in savings are going to be invested. Calculate the future value of the S2 50,000 in 30 years (expected return is 8%, compounded annually, round to the nearest S) -360,-0.25% 237.189 6. The answers to (4) and (5) inform us on the amount of money we will have in 30 years under the rental option. This includes the future value of $250,000 invested, as well as the diff erence in monthly cash payouts, which are invested. To get the future value of total savings under the rental option, please sum the values you got in requirements (4) and (S) above -12,-0.25%-) 11.807 $3,500 rent expense House value appreciation Broker fee You need to pay $3,500 at the end NA of every month for 30 years NA 7. Now we need to calculate the amount we can get for selling the house in 30 years The price of 3% annually. C on pounding is on an annual basis 4% of the fair value of the house at the time of sale (after 30 the house is $1,000,000. The value of the bouse appreciates by 3% every year. Calculate the value of the house in 30 years. NA 8. When selling the house, the broker charges a 4% fee on the selling price. How much money will you get for selling the house in 30 years, after the broker took their cu? 9. Based on the above, is it cheaper to buy a house or rent one? Explain