Exhibit 5.6 A Table of Monthly Mortgage Payments (Monthly Payments Necessary to Repay a $10,000 Loan) The monthly loan payments on a mortgage vary not only by the amount of the loan but also by the rate of interest and loan maturity. Loan Maturity Rate of Interest 10 Years 15 Years 20 Years 25 Years 30 Years 5.0% $106.07 $79.08 $ 66,00 $ 58.46 553.68 55 108.53 81.71 68.79 6141 56.79 6.0 111.02 84.39 71.64 6443 59.96 6.5 113.55 87.11 74.56 6752 63.21 7.0 116.11 89.88 7753 70.68 66.53 118.71 92.71 80.56 73.90 69.93 8.0 121.33 95.57 83.65 77.19 73.38 8.5 123.99 9848 86.79 80.53 76.90 9.0 126.68 10143 8998 83.92 80.47 129.40 10443 93.22 87.37 84.09 10.0 132.16 10747 96.51 90.88 87.76 95 Instructions: (1) Divide amount of the loan by $10,000,(2) fnd the loan payment amount in the table for the specific interest rate and maturity and (1) multiply the amount from step 1 by the amount from step 2 Example: Using the steps just described the monthly payment for a $98,000, 55 percent, 30-year loan would be determined as (1) 598,000/510,000 98 (2) the payment associated with a 55 percent, 30-year loan from the table, 55679; (3) the monthly payment required to repay a 598,000, 55 percent, 30-year loan is 98 x $56.795556.54 Rent versus buy home Use Worksheet 5.2 and Exhibit 5.6. Emma Sanchez is currently renting an apartment for $550 per month and paying $325 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and 54,100 in closing costs. Emma 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 25 percent tax bracket and does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Emma. Assume Emma's security deposit is equal to one month's rent of $550. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years. a. Cost of renting. Round the answer to the nearest dollar. b. Cost of buying. Round the answer to to the nearest dollar. c. Emma should Select the home Exhibit 5.6 A Table of Monthly Mortgage Payments (Monthly Payments Necessary to Repay a $10,000 Loan) The monthly loan payments on a mortgage vary not only by the amount of the loan but also by the rate of interest and loan maturity. Loan Maturity Rate of Interest 10 Years 15 Years 20 Years 25 Years 30 Years 5.0% $106.07 $79.08 $ 66,00 $ 58.46 553.68 55 108.53 81.71 68.79 6141 56.79 6.0 111.02 84.39 71.64 6443 59.96 6.5 113.55 87.11 74.56 6752 63.21 7.0 116.11 89.88 7753 70.68 66.53 118.71 92.71 80.56 73.90 69.93 8.0 121.33 95.57 83.65 77.19 73.38 8.5 123.99 9848 86.79 80.53 76.90 9.0 126.68 10143 8998 83.92 80.47 129.40 10443 93.22 87.37 84.09 10.0 132.16 10747 96.51 90.88 87.76 95 Instructions: (1) Divide amount of the loan by $10,000,(2) fnd the loan payment amount in the table for the specific interest rate and maturity and (1) multiply the amount from step 1 by the amount from step 2 Example: Using the steps just described the monthly payment for a $98,000, 55 percent, 30-year loan would be determined as (1) 598,000/510,000 98 (2) the payment associated with a 55 percent, 30-year loan from the table, 55679; (3) the monthly payment required to repay a 598,000, 55 percent, 30-year loan is 98 x $56.795556.54 Rent versus buy home Use Worksheet 5.2 and Exhibit 5.6. Emma Sanchez is currently renting an apartment for $550 per month and paying $325 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and 54,100 in closing costs. Emma 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 25 percent tax bracket and does not plan to itemize deductions on her taxes. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Emma. Assume Emma's security deposit is equal to one month's rent of $550. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years. a. Cost of renting. Round the answer to the nearest dollar. b. Cost of buying. Round the answer to to the nearest dollar. c. Emma should Select the home