You are faced with the decision to purchase a new home that will serve you for the next 30 years, or rent a similar home. The home you are interested in costs $1 million. Annual real estate taxes are $9,600. 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. Interest is compounded monthly. Annual interest rate is 3% annually

Below is a table showing various factors that may have a financial impact:

1.Determine the monthly mortgage payments on the $750,000 mortgage (round to the nearest $).

2.What is the monthly payment on real estate taxes?

3.Under the purchase option, what is total payment every month for the next 30 years (sum your answers to requirements 1 and 2 above)?

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 $3,500, and multiply it by the correct multiplier to get the future value of these monthly savings in 30 years (round to the nearest $).

5.Under the rental option, the $250,000 you have in savings are going to be invested. Calculate the future value of the $250,000 in 30 years (expected return is 8%, compounded annually, round to the nearest $).

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 difference 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 (5) above.

7.Now we need to calculate the amount we can get for selling the house in 30 years. The price of the house is $1,000,000. The value of the house appreciates by 3% every year. Calculate the value of the house in 30 years.

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 cut?

9.Based on the above, is it cheaper to buy a house or rent one? Explain.