Problem 2 of 3

The Smith family can purchase a house valued at $100 000.00 with a down payment of $10 000.00, or they could rent a similar house.

(a) The monthly payment for a mortgage, amortized over 15 years at an interest rate of 6.50% compounded monthly, is $784.00. If the Smiths purchase the house, calculate the total amount paid, including the down payment, by the end of the first 5 years.

(b) Real estate appreciates at a rate of 3% per year. Determine the equity in the purchased house after 5 years. Show all work.

(c) Given that it is more expensive to rent, give two reasons why the Smiths would choose to rent.

Solution

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