Question

Mika wants to buy a condominium. He has the choice of buying it now or renting it with the option to buy at the end of 3 years. If he buys now, he could put $0 down, but he must pay closing costs of $7,100. His monthly mortgage payment will be $675.
Mika decides to rent instead of buy because it is the cheapest option over the first 3 years. His move-in costs are one month's rent and a $750 security deposit, and he would still need to pay his first month's rent on top of these move-in costs. To the nearest dollar, what is the maximum amount of monthly rent payment he could pay?
a.
$636
b.
$654
c.
$828
d.
$851

Answer 1

Buy now cost: closing costs + 36 mortgage payments = 7,100 + 36(675) = 7,100 + 24,300 = 31,400.

Rent cost over 3 years: move-in = one month’s rent + $750 deposit, plus first month’s rent again, so initial = 2r + 750, then 35 more monthly rents = 35r. Total = 37r + 750.

Set renting ≤ buying: 37r + 750 ≤ 31,400 → 37r ≤ 30,650 → r ≤ 30,650/37 ≈ 828.38.

To the nearest dollar, the maximum monthly rent is $828. Answer: (c) $828.