If they rent, the builder will require monthly rental payments of $1,200 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 homes value per year. Money used to fund the units security deposit could otherwise be invested to earn 3% per year after taxes. Funds expended for a homes 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 loan will carry an interest rate of 6%, a term of 30 To perform a rent-or-buy analysis, Yakov and his wife have collected the following information: years, and monthly payments of $839. The closing costs associated with the units mortgage will be $3,500. The property taxes and the maintenance and repair expenses on the unit are estimated to be 4% and 1% of the units total price, respectively. Your ordinary income is taxed at the rate of 28%, and youll be willing 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 3% this year due to inflation.