Question

Assume an after-tax savings interest rate of 7 percent and a tax rate of 28 percent. (a) Calculate the total rental cost and total buying cost

Answer 1

Complete Question

Annual rent $ 7,380

Insurance 145

Security deposit 650

Annual mortgage payments $9,800 ($9,575 is interest)

Property taxes 1,780

Insurance/maintenance 1,050

Down payment/closing costs 4,500 Growth in equity 225

Estimated annual appreciation 1,700

Assume an after-tax savings interest rate of 7 percent and a tax rate of 28 percent.

(a) Calculate the total rental cost and total buying cost.

Answer:

Explanation:

(a)Rental Costs

Buying Costs $7,380

Rent $9,800

The following calculations were made:

Interest lost on security deposit

= Security deposit × 7%

= $650 × 0.07 = $45.5

Interest lost on down payment and closing cost

= Down payment × 7%

= $4,500 × 0.07 = $315

Tax savings for mortgage interest =

Interest × 28%

$9,575 × 0.28 = $2,681

Tax savings for property taxes =

= Property taxes × 28%

$1,780 × 0.28 = $498