Dad's new house by flickr user Patrick Haney

Buying a New Home ...

or is renting a better idea?

Tara wants to drive a small economy car priced at $19 800 before taxes. PST is 7% and GST is 5%. She has $3500 to use as a down payment for buying or leasing. If she buys the car, she will get a 4 year loan at 8.5% to pay for it. If she leases the car, she wants to buy the car at the end of the lease. The lease will be for 3 years at 8.5% and the residual value will be 43% of the original price. Tara will also need a 2 year loan (at 8.5%) at the end of the lease to buy the car.

(a) What is the total cost of buying the car? HOMEWORKN=48I%=8.5PV=18676PMT=-460.33FV=0P/Y=12C/Y=12PMT: END BEGIN

Cost w. Tax is $22 176After Down Payment: $18 676

Total Cost of Car: 48 * $460.33 + $3 500.00 = $25 595.84

Monthly Payment: $460.33

Tara wants to drive a small economy car priced at $19 800 before taxes. PST is 7% and GST is 5%. She has $3500 to use as a down payment for buying or leasing. If she buys the car, she will get a 4 year loan at 8.5% to pay for it. If she leases the car, she wants to buy the car at the end of the lease. The lease will be for 3 years at 8.5% and the residual value will be 43% of the original price. Tara will also need a 2 year loan (at 8.5%) at the end of the lease to buy the car.(b) What is the total cost of owning the car if Tara leases it first?

HOMEWORKN=36I%=8.5PV=17654.32PMT=-348.84FV=-8514P/Y=12C/Y=12PMT: END BEGIN

$19 800.00 + $1 354.32 - $3 500.00 = $17 654.32

PV of Lease Loan

$11 286.00 * 0.12 = $1 354.32

Taxes

$19 800.00 - $8 514.00 = $11 286.00

Depreciation

$19 800.00 * 0.43 = $8 514.00

Residual Value N=24I%=8.5PV=8514PMT=-387.01FV=0P/Y=12C/Y=12PMT: END BEGIN

Lease: $16 058.24

Total Cost: $25 346.48Buy-Out: $9 288.24

Tara wants to drive a small economy car priced at $19 800 before taxes. PST is 7% and GST is 5%. She has $3500 to use as a down payment for buying or leasing. If she buys the car, she will get a 4 year loan at 8.5% to pay for it. If she leases the car, she wants to buy the car at the end of the lease. The lease will be for 3 years at 8.5% and the residual value will be 43% of the original price. Tara will also need a 2 year loan (at 8.5%) at the end of the lease to buy the car.

(c) Name two benefits of leasing the car instead of buying.HOMEWORK

What are some advantages of buying? Of leasing?

(a) Ted, a construction worker, wants to buy a new pickup truck priced at $36 699.00 plus PST (7%) and GST (5%). His current truck has a trade-in value of $6800.00. What is the total cost of the truck if Ted has $3500.00 for a down payment, and takes out a three-year loan at 8.5% for the balance? What is the value of each monthly payment?

Ted's Truck

(b) Ted also considers leasing the truck (still priced at $36 699.00) for three years. He is able to use the old truck valued at $6800.00 plus $3500.00 as the down payment. The lease rate is 7.3%, and the residual value is set at $22 499.00. What is the total cost of the lease? How much is the monthly lease payment?

(e) What are some advantages of buying rather than leasing the truck that Ted might consider?

(c) At the end of the three-year lease, Ted may decide to buy the truck for the residual value, plus PST and GST. He would take out a two-year loan at 7.5% to pay for the truck. What is the total cost of the truck after the loan for the residual value is paid off?(d) Which is more economical - buying the truck (#a) or leasing the truck and then buying it later?

HOMEWORK

Dad's new house by flickr user Patrick Haney

Buying a New Home ...

or is renting a better idea?

Some things to keep in mind if you rent are:

1. You need to pay monthly rental payments in advance, and probably also one month's rent in advance as damage deposit. You do not, however, need to pay a large down payment and the various fees required when buying.

Some things to keep in mind if you rent are:

1. You need to pay monthly rental payments in advance, and probably also one month's rent in advance as damage deposit. You do not, however, need to pay a large down payment and the various fees required when buying.

2. Renting a home is cheaper in the short term than buying, but it does not create any assets.

Some things to keep in mind if you rent are:

1. You need to pay monthly rental payments in advance, and probably also one month's rent in advance as damage deposit. You do not, however, need to pay a large down payment and the various fees required when buying.

2. Renting a home is cheaper in the short term than buying, but it does not create any assets.

3. You need to know what is included in the rental payment. For example, are the utilities (especially water, hydro, heating) included? Is the home furnished or partly furnished?

Some things to keep in mind if you rent are:

1. You need to pay monthly rental payments in advance, and probably also one month's rent in advance as damage deposit. You do not, however, need to pay a large down payment and the various fees required when buying.

2. Renting a home is cheaper in the short term than buying, but it does not create any assets.

3. You need to know what is included in the rental payment. For example, are the utilities (especially water, hydro, heating) included? Is the home furnished or partly furnished?

4. If you buy a house, the value of the house normally increases with time. If you rent a house, the rental payments will increase over time, and you do not create any assets.

1. There may be restrictions to your lifestyle if you rent. For example, you may not be able to have pets in a rented home, or modify the home to suit your personal needs.

Some non-financial factors to consider when renting

1. There may be restrictions to your lifestyle if you rent. For example, you may not be able to have pets in a rented home, or modify the home to suit your personal needs.

2. You are not responsible for repairs, maintenance, or property taxes. For example, if the hot water tank needs replacing, the owner is responsible.

Some non-financial factors to consider when renting

1. There may be restrictions to your lifestyle if you rent. For example, you may not be able to have pets in a rented home, or modify the home to suit your personal needs.

2. You are not responsible for repairs, maintenance, or property taxes. For example, if the hot water tank needs replacing, the owner is responsible.

3. If you need the home for only a short time, it may be better to rent so that you can avoid the inconvenience and expense of reselling the home.

Some non-financial factors to consider when renting

1. There may be restrictions to your lifestyle if you rent. For example, you may not be able to have pets in a rented home, or modify the home to suit your personal needs.

2. You are not responsible for repairs, maintenance, or property taxes. For example, if the hot water tank needs replacing, the owner is responsible.

3. If you need the home for only a short time, it may be better to rent so that you can avoid the inconvenience and expense of reselling the home.

Some non-financial factors to consider when renting

Now, we will look at the costs associated with

buying and renting a home.

Banks and other lending institutions have developed a formula that allows you to calculate the maximum price of a home you can afford. This formula is known as the Gross Debt Service Ratio, or GDSR. According to this formula, anyone buying a home should spend no more than 32% of gross income on household or accommodation expenses, including mortgage payments, property taxes, heating and condo/strata fees. The formula may be written as:

"How Much Can I Afford to Pay for a Home?"

Find your maximum mortgage amount and monthly payment

http://is.gd/zxayhttp://is.gd/zxd5

Looking for a house?

Lucy Brown wants to buy a condo, but does not know how much money she should spend based on her income. She earns $44 000 per year, and has saved $9000 for a down payment. The property taxes for the condo she likes are $1500 per year, and the heating costs average $90 per month. The condo/strata fees are $180 per month. The bank will give her a 25-year mortgage at an interest rate of 7.5%. What is the maximum price she can afford for a condo, based on spending no more than 32% of her gross income on household and accommodation expenses? HOMEWORK