posted by Loraina on .
Kim and Dan Bergholt are both government workers considering purchasing a condo for 280,000. Kims gross incoem is 55,000 and Dans is 38,000 they have 60,000 in a money market fund which earned 5,840 last year. they plan to use most of it for a 20% downpayment and closing costs equal 1,000 plus 3 points. The reals estate agent tells them that if they don't care to purchase the rental option would cost 1,400 a month plus utilities estimated at 220. and insurance 25. assuming they stay for 5 years they would like to know if it owuld be better to buy or rent.they expect the housing and rents will rise annual at 3% over the next 5 years they expect ot earn an annual rate of 5% on the money market fund. Utilities taxes are expected to increase 3%annual all federal state and locales they get to keep 55% of marginal dollar of earnings. estimate wheather it is financially more attractive to rent or purchase the home over 5 years holding period assuming the contract interest rate of 8% monthly interest payments over the 5 years would total 87,574