Use the table provided below as a starting point to answer the following questions.
a. How sensitive is the decision to the amount of the down payment for the purchase?option? If a down payment of less than
20?% is?used, you will need to account for additional monthly mortgage insurance?(about ?$58?/month).
b. Interest paid on a mortgage is tax deductible if you itemize deductions on your personal income tax return. Discuss how you would incorporate this and what impact it would have on the decision to purchase versus rent a home.
Use the table provided below as a starting point to answer the following questions. a. How sensitive is the decision to the amount of the down payment for the purchase option? If a down payment of less than 20% is used, you will need to account for additional monthly mortgage insurance (about $58/month). b. Interest paid on a mortgage is tax deductible if you itemize deductions on your personal income tax return. Discuss how you would incorporate this and what impact it would have on the decision to purchase versus rent a home. Click the icon to view the data to be used in analysis. a. Analyze the sensitivity of PW advantage of home purchase to changes in each estimate individually. (Round to the nearest dollar.) Factor Factor Change PW advantage of home purchase - 30% Down Payment + 30% - 30% Repayment Period + 30% Application/closing - 30% $ fees + 30% b. Interest paid on a mortgage is tax deductible if you itemize deductions on your personal income tax return. Choose the correct answer below. O A. You should itemize your deductions if your mortgage interest is less than your standard deduction. This will make you more inclined to renting home. O B. You should itemize your deductions if your mortgage interest is higher than your standard deduction. This will make you more inclined to purchase home. O C. You should certainly itemize your deductions as far as this reduces your taxable income and makes you more inclined to renting home O D. You should not itemize your deductions as far as this increases your taxable income and makes you more inclined to purchase home.Purchase or Rent Analysis Inputs Present Worth Analysis Length of ownership/renting 5 Note: cash inflows are negative values; cash (years) outflows are positive values Personal interest rate (percent) 10.0% Renting Renting Present Worth Deposit (returned at departure) $1,200 Deposit $470.65 Monthly payments (first year) $1,200 Monthly payment (base) $56,478.44 Monthly rent change each year 525 Monthly rent change each $2,058.54 year Renters insurance (monthly) $35 Renters insurance $1,647.29 Renting total cost $60,654.92 Purchase Purchase Present Worth Application/closing fees $2,000 Application/closing fees $2,000.00 Purchase price $145,000 Monthly mortgage payments $36,322.74 Down payment percentage 20.0% Down payment $29,000.00 Loan interest rate (percent) 7.0% Loan length (years) 30 Monthly insurance and tax $200 Monthly insurance and tax $9,413.07 Monthly maintenance $50 Monthly maintenance $2,353.27 Future selling price $160,000 Equity in house ($30,880.13) Sales commission/fees (percent) 7.0% Sales commission/fees $6,807.23 Owning total cost $55,016.18 Calculations Present worth advantage: Monthly mortgage payment $771.75 Purchase Home $5,638.74 Mortgage balance at time of sale $109, 192.64
