Question

Sarah would like to purchase a condo in Vancouver. She currently rents an apartment for $4,500 per month. The condo she is looking at costs $1,600,000. She intends to put $300,000 down. The condo has monthly condo fees of $300/month, property taxes of $200/month and repairs of $100/month. She can obtain a 30-year mortgage for 3% per year compounded monthly.

There are the following closing costs at purchase:

Land transfer tax $20,000

Legal fees $1,500

There are the following closing costs when selling:

Real estate commission of 3% of selling price

Legal fees $2,000

1. What is the required monthly mortgage payment on the new property? (You need to convert the annual interest rate to a monthly rate.)

2. What is the initial cash outflow of the purchase decision?

3. What is the present value of all the cash outflows for the purchase from month 0 to month 120 (the first 10 years)?

4. (a) What is the principal outstanding for the loan after 10 years? (Calculate the value at year 10 of the remaining 20 years of mortgage payments)

(b) Go to an online mortgage site and use it to calculate the same answer. Print off and scan or take a screen shot and imbed in the Word document.

5. Compute the cost (NPV) under buying and renting over the next 10 years assuming the unit is sold in 10 years for $1,800,000 and rent stays constant. Is it better to rent or buy? Upon sale, you will need to pay off the outstanding loan balance (see #4).

Answer 1

Question #1

To calculate the monthly payments, the following información musy ve talen into account:

Amount yo lend = Cost of the condo * $300,000 = $1,300,000

Periodo number = 30 years * 12 months = 360

Interest rate = 3% / 12 months = 0.25%

Yo calculate the monthly mortgage payments (PMT) You can use the Excel PMT función. Open a spreadsheet and type un a cell =PMT(0.25%,360,1300000,0,0). This equals a monthly payments equal to $5,480.85

Question #2

Sara's casa outflow equal = $300,000 + total closing costs on purshase + total closing costs on selling . This is $300.000 + land Transfer tax + legal fees + real estate commission of 3% of selling price + legal fees.

$300.000 + $20,000 + $1,500 + $48,000 + $2,000 = $371,500.

NOTE. The real estate commission is 3% of $1,600,000

Question 3

The calcularon of the Present Value of the purchase cash flores can be done bye typing the Excel PV función. Yo do this, entre the following información:

Interest rate = 0.25%

Number of periodos = 120

Payments = monthly mortgage payments + monthly condo fees + property taxes + repairs = $6080,85

Type =PV(0.25%,120,6080.85)

Present Value (PV) = $629,743.74