Is it more economical to purchase or rent a home? Evaluate the economics of renting versus...

Is it more economical to purchase or rent a home? Evaluate the economics of renting versus buying a $150,000 home and living in it for five years. If your personal interest rate is 12% per year (compounded monthly), is it more economical to rent or purchase this home? Provide Present Worth analysis (show your work) to validate your decision. Use the data below in your analysis. Rental Option:

Rent is $1,200 per month for the first year and increases $3 per month. There is also a $1,200 deposit payable when the lease is signed and is refunded at the end of year 5. Renter’s insurance is $35 per month.

Purchase Option: A$30,000 down payment is made, so $120,000 will be financed with a 30-year mortgage having a 6% annual interest rate compounded monthly. Additional closing costs of $2,000 are paid at the time of purchase. Property taxes and homeowners’ insurance total $200 per month, and maintenance is $50 per month. You sell the house with a profit of $43,000 prior to commission paid. The commission you paid to the realtor at the time of the sale is expected to be 7% of the selling price of $160,000.

Expert Solution

Rahul Sunny answered 7 months ago

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