A couple bought their house 10 years ago for$165,000. At

Chapter , Problem 13-46

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A couple bought their house 10 years ago for$165,000. At the time of purchase, they madea $35,000 down payment, and the balance was financed by a 30-year mortgage with monthly pay-ments of $988.35. They expect to live in this housefor 20 years, after which time they plan to sell thehouse and move to another state. Alternatively, theycan sell the house now and live in a rental unit forthe next 20 years. The house can be sold now for$210,000,from which an8%real estatecommissionand $110,000 remaining loan balance and miscella-neous expenses will be deducted. If they stay in thehouse, the house can be sold after 20 years for$320,000 from which a 10% real estate commis-sion and $10,000 miscellaneous expenses will bededucted. A comparable rental unit rents for $960payable at the beginning of every month. No secu-rity deposit will be required of them to rent the unit,and the rent will not increaseif they maintain a goodpayment record. They use an interest rate of 0.5%per month for analyzing this financial opportunity.Should they stay in the house or should they sell itand move into a rental unit?Contributed by Hamed Kashani, Saeid Sadri, andBaabak Ashuri, Georgia Institute of Technology