In the Worksheet 9, I analyzed the decision of whether to purchase or lease a car. This decision is a “tough call” considering that buying will cost higher monthly payments but there is ownership of the car market value. Further, leasing decision will have a lower monthly payment but there is no ownership to the salvage value at the end of the period. On one hand, the total purchase price agreed is $42,600 plus $2,000 will be the down payment. With this, I will have a one-year loan repayment of $40,600 ($3,383 monthly). Therefore, the opportunity cost of down payment will equal to $2,040. The total cost of leasing equals $44,640. In short, the decision to purchase this vehicle will save $15,750. Further, although a purchase option will be beneficial in the long run, it also affects the financial plans. Contrary to a leasing deal, the purchase will transfer the ownership to the purchaser. This means that all the vehicle expenses will be transferred to the owner ( Okerson, 2017). Other than the normal expenses such as fueling and oiling, there are maintenance costs such as new spare parts due to tear and wear. Most of these maintenance costs are unpredictable as they result from the vehicle break-down. Thus, they affect personal financial plans of saving for emergency funds and paying off credit card debt.
In worksheet 11, I used these three methods to identify the maximum monthly mortgage size and payment qualification (Fuster and Willen, 2017). Assuming that I earn an annual income of $45,000 ($3,750 monthly), my monthly mortgage payment qualification is a minimum of $102,208 and a maximum of $115,835. The most common lender’s rule of thumb mortgage qualification is based on a formula and not basically on the value of the house. More often, the payment would not exceed 28% of the gross income which is a lower interest rate than the normal loan. A mortgage loan is a predictable expense and considering that it is deducted as withholding expenses by the employer, and thus I would receive the net income. Such as monthly payment loan reduces the overall earning and thus, affecting my personal financial plans of saving for emergency funds and paying off credit card debt.
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References
Fuster, A., & Willen, P. S. (2017). Payment size, negative equity, and mortgage default. American Economic Journal: Economic Policy , 9 (4), 167-91. Retrieved from: https://www.aeaweb.org/articles?id=10.1257/pol.20150007
Okerson, A. S. (2017). Buy or lease? Two models for scholarly information at the end (or the beginning) of an era. In Books, Bricks and Bytes (pp. 55-76). Routledge. Retrieved from: https://content.taylorfrancis.com/books/e/download?dac=C2017-0-45698-8&isbn=9781315082073&doi=10.4324/9781315082073-4&format=pdf
