tinker with assumptions
You tinkered with some of the assumptions in the broker’s model. What did you learn about the model?
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Say your loan interest is changed to 6.5% and the house appreciates at 1.5% per annum. Does that affect your decision to buy?
The cost for buying a house goes way up under this circumstance, for two reasons: one, the mortgage interest cost is a lot higher and two, the appreciation of the house isn’t high enough to compensate for the increase in mortgage interest. Given the rent assumptions at the top of the spreadsheet, the NPV calculations show renting to be a clear winner. Here are the two assumptions you changed.
Now the NPV for buying costs is higher than the NPV for renting.
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Chapter 8
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