Your friend started working for a tech company in downtown Vancouver six months ago, and is interested in buying a property to live in$.$ As you have recently learnt time value of money concepts, your friend approached you to seek your advice on whether to buy the property or rent a comparable unit in downtown closer to the workplace. Your friend plans to sell the condo after $5$ years if the condo is bought.

Please answer the following questions:

$1.$ What would be monthly mortgage payment if your friend decides to buy? Rate: $4\mathrm{.}8\%$ semi$-$annual compounding over $25$ years amortization.

$2.$ What would be the principal outstanding amount on mortgage after $5$ years?

$3.$ What is the annual household income required to qualify for the required mortgage? What is your understanding of Canadian mortgage stress test and how it is used to calculate mortgage qualification? Assume that your friend does not have any credit card debt, vehicle loan liability or other loans.

$4.$ Based on your research on housing market, quantitative and qualitative analysis, what would be your recommendation to your friend $-$ to rent or to buy? In your analysis, you will need to consider $3$ possible condo price assumed scenarios.

a$.$ Price of condo remains unchanged after $5$ years.

b$.$ Price of condo increases by $10\%$ after $5$ years.

c$.$ Price of condo decreases by $5\%$ after $5$ years.

Financial Information:

Purchase:

Purchase price: $$730,000.$

Strata maintenance fee $($monthly$)$: $$511$

Property tax $($monthly$)$: $$150($approximate$)$

Heat $($monthly$)$: $$50$

Repair and general maintenance $($monthly$)$: $$50$

Assume those monthly fees do not change over next $5$ years.

Down payment at $20\%$ of purchase price. Obtain a mortgage the rest of $80\%.$

Legal fee $($One time when buy and sell$)$: $$1,500.$

Inspection fee $($One time when buy$)$: $$400.$

Property transfer tax $($One time when buy$)$: $$12,980.$

Mortgage:

$5-$year fixed mortgage rate: $4\mathrm{.}80\%$ with $25$ years amortization with monthly payments

GDS$/$TDS Ratios: $39\%/44\%$

Selling cost:

Realtor fees $($One time when sell$)$: Assume it would cost $3\mathrm{.}25\%$ of selling price.

Rent:

Monthly rental: $$3,600$ comparable unit.

Assume rent increases $3\%$ yearly over $5$ years.