posted by loraina on .
kim and dan bergholt are both government workers they are considering purchasing a home for $280,000 utilities are $220 maintenance at $100 property at $380 utilities 220.00 maintenence 100. property taxes 380. insurance 50. there only debt is a ar loan of 350. Kim gross income is 55,000 and dans is 38,000/year they saved 60,000 in a money market fund which earned 5,840. last year the real estate agent tells the bergholts that if they don't want to purchase they might consider renting. thr rental option is 1,400. plus utilities at 220. renters insurance 25. assuming they stay in the same place for 5 years they would like to know if its better to buy or rent. they expect the pric of housing to rise by 3% over the next 5 years. they expect ot earn an annual rate of 5% on the money market fundall othr prices and taxes are expected to increase 3% anual rate after federal state and local taxes they get to keep only 55% of a marginal dollar of earnings. Estimate wheather it is financially more attractive for the bergholts to rent or to purchase the home over 5 years holding period (assuming the contract interest rate of 8% monthly payments over the five year period would total 87,574
This is a complex problem -- especially since your problem mixes annual and monthly expenses and income.
As Writeacher answered in your last post, your question would be easier to read if you used appropriate capitalization and punctuation.
In general, it's often cheaper to rent than to buy, assuming the down payment money is invested wisely. (A 5% money market fund is a good investment.) However, many people opt for the satisfaction of home ownership, even if it costs them more in the long run.
What do you think is their best option?