Assignment: Ch. 9
1. Ch. 9. Deciding to Buy.
Walter and Marcie Jensen of Atlanta, Georgia, both of whom are in their late 20s, currently are renting an unfurnished two-bedroom apartment for $880 per month, plus $130 for utilities and $34 for insurance. They have found a condominium they can buy for $170,000 with a 20 percent down payment and a 30-year, 5 percent mortgage. Principal and interest payments are estimated at $730 per month, with property taxes amounting to $150 per month and a homeowner's insurance premium of $720 per year. Closing costs are estimated at $3200. The monthly home-owners association fee is $275, and utility costs are estimated at $160 per month. The Jensens have a combined income of $57,000 per year, with take-home pay of $4100 per month. They are in the 15 percent tax bracket, pay $225 per month on an installment loan (ten payments left), and have $39,000 in savings and investments outside of their retirement accounts.
(a) Can the Jensens afford to buy the condo? Use the results from the Garman/Forgue companion web-site or the information on page 262 to support your answer. Also, consider the effect of the purchase on their savings and monthly budget.
(b) Walter and Marcie think that their monthly housing costs would be lower the first year if they bought the condo. Do you agree? Support your answer. Assume that they currently have $7000 in tax deductible expenses.
(c) If they buy, how much will Walter and Marcie have left in savings to pay for moving expenses?
(d) Available financial information suggests that mortgage rates might drop over the next few months. If the Jensens wait until the rates drop to 4.0 percent, how much will they save on their monthly mortgage payment? Use the information in Table 9-4 or the Garman/Forgue companion website to calculate the payment.
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