Five years have passed and Jamie Lee, 34, is considering taking the plunge--not only is she engaged to be married, but she is also deciding on whether to purchase a new home. Jamie Lee’s cupcake café is a success! It has been open for over a year now and has earned itself rave reviews in the local press and from its regular customers who just cannot get enough of her delicious varieties of cupcakes. One such customer, who stopped by on a whim in the café’s first week of business, is Ross. After a whirlwind courtship, Ross, a self-employed web designer, proposed, and Jamie Lee agreed to be his wife. The bungalow that Jamie Lee has been renting for the past five years is too small for the soon-to-be newlyweds, so Jamie Lee and Ross have found a brand new three-bedroom, 2 ½ bath home in a quiet neighborhood for $278,000. Their neighborhood’s homeowner’s association dues would be $420.00 a year. After paying a year’s worth of house payments, their equity will be $2,600. Based on Jamie Lee and Ross’ income, they fall into a 25% tax rate bracket. Use this payment information along with the information below to compare the costs of renting and buying a house. Rent payment for a house (monthly) $800 Renter's security deposit $450 Renter's insurance (yearly) $85 Savings account interest rate 1.06% Mortgage payment $1,303.02 National average property tax rate 1.20% Homeowner's insurance payment (monthly) $35 Maintenance and repair (% of home value) 1% Interest lost on down payment/closing costs $900 Mortgage interest paid in first year $12,800 Estimated annual appreciation $2,400
Five years have passed and Jamie Lee, 34, is considering taking the plunge--not only is she engaged to be married, but she is also deciding on whether to purchase a new home. Jamie Lee’s cupcake café is a success! It has been open for over a year now and has earned itself rave reviews in the local press and from its regular customers who just cannot get enough of her delicious varieties of cupcakes. One such customer, who stopped by on a whim in the café’s first week of business, is Ross. After a whirlwind courtship, Ross, a self-employed web designer, proposed, and Jamie Lee agreed to be his wife. The bungalow that Jamie Lee has been renting for the past five years is too small for the soon-to-be newlyweds, so Jamie Lee and Ross have found a brand new three-bedroom, 2 ½ bath home in a quiet neighborhood for $278,000. Their neighborhood’s homeowner’s association dues would be $420.00 a year. After paying a year’s worth of house payments, their equity will be $2,600. Based on Jamie Lee and Ross’ income, they fall into a 25% tax rate bracket. Use this payment information along with the information below to compare the costs of renting and buying a house. Rent payment for a house (monthly) $800 Renter's security deposit $450 Renter's insurance (yearly) $85 Savings account interest rate 1.06% Mortgage payment $1,303.02 National average property tax rate 1.20% Homeowner's insurance payment (monthly) $35 Maintenance and repair (% of home value) 1% Interest lost on down payment/closing costs $900 Mortgage interest paid in first year $12,800 Estimated annual appreciation $2,400
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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I really need help with the rental and buying costs here.
Five years have passed and Jamie Lee, 34, is considering taking the plunge--not only is she engaged to be married, but she is also deciding on whether to purchase a new home.
Jamie Lee’s cupcake café is a success! It has been open for over a year now and has earned itself rave reviews in the local press and from its regular customers who just cannot get enough of her delicious varieties of cupcakes. One such customer, who stopped by on a whim in the café’s first week of business, is Ross. After a whirlwind courtship, Ross, a self-employed web designer, proposed, and Jamie Lee agreed to be his wife.
The bungalow that Jamie Lee has been renting for the past five years is too small for the soon-to-be newlyweds, so Jamie Lee and Ross have found a brand new three-bedroom, 2 ½ bath home in a quiet neighborhood for $278,000.
Their neighborhood’s homeowner’s association dues would be $420.00 a year. After paying a year’s worth of house payments, their equity will be $2,600. Based on Jamie Lee and Ross’ income, they fall into a 25% tax rate bracket. Use this payment information along with the information below to compare the costs of renting and buying a house.
| Rent payment for a house (monthly) | $800 |
|---|---|
| Renter's security deposit | $450 |
| Renter's insurance (yearly) | $85 |
| Savings account interest rate | 1.06% |
| Mortgage payment | $1,303.02 |
| National average property tax rate | 1.20% |
| Homeowner's insurance payment (monthly) | $35 |
| Maintenance and repair (% of home value) | 1% |
| Interest lost on down payment/closing costs | $900 |
| Mortgage interest paid in first year | $12,800 |
| Estimated annual appreciation | $2,400 |
Transcribed Image Text:Rental Costs
Monthly rent
Annual rental payments (monthly rent x 12)
Renter's insurance
Interest lost on security deposit (deposit x savings account interest rate)
Total annual cost of renting
Buying Costs
Annual mortgage payments
Property taxes (annual costs)
Homeowner's insurance (annual premium)
Estimated maintenance and repairs
After-tax interest lost because of down payment/closing costs
Less: Financial benefits of homeownership
Growth in equity
Tax savings for mortgage interest (annual mortgage interest x tax rate)
Tax savings for property taxes (annual property taxes x tax rate)
Estimated annual appreciation
Total annual cost of buying
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