Question

Your friend wanted to buy a two-bedroom apartment in St. Lucia that is priced at $560,000. Assess the option as shown in below:

Off-the-Plan Option: A real-estate agent told you that as a first-time homeowner, your friend will be eligible to receive a first home owner’s grant of $10,000 if you buy a brand new apartment. Luckily, there is a development project offering a new apartment that is almost the same as the one that your friend likes, and it also priced at $560,000. However, this new property is currently selling as 'off-the-plan' ('off-the-plan' means a property that hasn't been built yet). It will be exactly two years before your apartment settles. For an off the plan purchase, you will be paying 10% deposit when you sign the contract with a developer (you will sign it today) and the remaining balance will due on the settlement date. Your 10% deposit with the developer will be earning an interest at 4% p.a. (compounded monthly).

Let’s assume on the settlement date. You decide to pay another 10% of the purchase price. The $10,000 grant will be credited to your saving account on the settlement date (for easy calculation purposes) and you will use it to pay off your mortgage. The remaining balance will be financed by the mortgage, where the first repayment happens one month after the settlement date. The application fee for this loan is $3,000 in cash on the settlement date. You will take out a 30-year mortgage paying a fixed at 5% p.a. (compounded monthly). Meanwhile, you will be renting a unit before your apartment is settled. The monthly expense for renting is $880 (due at the beginning of every month, beginning today).

Other Assumptions: To facilitate your analysis, assume that your bank allows you to lend (and borrow) at a rate of 4% p.a., compounded daily. Assume your friend will sign the contract to buy the apartment by the end of today, once you figured out which option is better.

List a table with time and payments of each period(You should give the calculation process and formula(Excel Formula is ok))

Answer 1

1) Working for off the plan buy out

Buy off the plan Apartment	Amount		Notes
Apartment Value	5,60,000
10% Deposit	56,000
Interest on Deposit	4%	0.0033	Monthly
Value of Deposit after 24 months	60,656.01		B3*(1+C4)^24
Mortgage	4,43,343.99		Total- FV of Deposit- additional payment
Mortgage net of grant	4,33,343.99
Mortgage Payment	₹ -2,326.28		PMT(5%/12,(30*12),B7)
Timeline	Today	Year 1	Year 2
Deposit	-56,000
10% Additional Payment			-56,000.00
Mortgage Application			-3,000.00
Rent		-10560	-10560
Total	-56,000	-10,560	-69,560
Mortgage Payment	-8,37,462.33
Total	-9,73,582

2) Buying property today

Buy Today	Amount	Note
Apartment Value	5,60,000
10% Deposit	56,000
Mortgage	5,04,000
Application fee	3,000
Mortgage Payment	-2,706	PMT(5%/12,(30*12),B7)
Total Value of house	-9,77,009	Monthy Payment*360+ Mortgage fee

It is beneficial to buy new apartment as the total cost is lesser in that case