Ho is earning HK$30,000 per month and has a saving of total HK$900,000. He is now thinking of getting his first home. There are two choices available to him: 1) to buy a flat at HK$4.4M or 2) to rent a flat at HK$12,000 per month.

He has done some researches on the corresponding benefits and costs. Below is the information.

Renter's insurance                                      3000
Maintenance                                                4000
Security deposit                                         24000
Tax saving 20% of the interest payment
Property tax rate 1% of price of home
Closing costs (exclude stamp duty)　    60000　
Home insurance                                          5000
Stamp duty (refer to the lecture note)

He expects that the value of the property will increase by 1% annually and he can get a rate of return of 4% on his investment.

He has also searched for some mortgage plans and plans to take a 25 years loans.

　
Bank A
Bank B
Prime rate
5%
5.50%
Spread
2.5%
3.2%
Cash reimbursement
1%
1%
Interest penalty
1% of the mortgage loan for within the 1st year
1% of the mortgage loan for within the 1st 2 years

Questions:

a) What is the minimum down payment needed?

b) If he decides to live in his home for more than 5 years and both plans offer him the same loan amount, which mortgage plan is a better choice?

c) Work out an amortization table for the corresponding mortgage plan for the first 12 months.

d) Work out a cost analysis for the “buy or rent” decision.