1. Applied 40S Rent vs. Buy
1. The Walkers would like to make a move. They are trying to
decide whether to buy a condo or rent an apartment. Their
joint monthly income is $4200.00. They have $14 000.00
saved which they could use for a down payment if they
decide to buy. If they decide to rent, they agree to invest the
money in a GIC that would earn them 5% interest. They
have narrowed down their options to the following: they will
either buy a condo valued at $110 000.00 at an interest rate
of 6.5% over 20 years, or they will rent an apartment for
$700.00 per month.
a) How much would their monthly mortgage payments be?
b) At the end of 15 years, how much equity would they have in
their condo?
c) How much would they have paid in total mortgage payments
in those 15 years?
d) How much is their net gain or loss over that period?
e) How much would their investment be worth after 15 years if
they rented?
f) How much would they have paid over the years in rent?
g) How much would their net gain or loss be over that period if
they rent?
h) What would you suggest they do? Why?