Question

Aleisha wants to buy a condominium. She has the choice of buying it now or renting it with the option to buy at the end of 4 years. If she rents now, she must pay a deposit of $1,500 and pay rent of $865 per month. If she buys, she would need closing costs and her mortgage payment would be $844 a month for 4 years. How much would her closing costs need to be in order for the cost to buy to be the same as the cost to rent?
a.
$4,008
b.
$2,508
c.
$1,521
d.
$1,008

Answer 1

Rent cost for 4 years = 1,500 + 865(48).
Buy cost for 4 years = closing costs + 844(48).
Set equal: closing = 1,500 + (865−844)·48 = 1,500 + 21·48 = 1,500 + 1,008 = 2,508.

Answer: b. $2,508