You have just purchased a home that cost $250,000.The nominal mortgage interest rate is 8% per annum,mortgage interest payments are tax deductible,and you are in a 30% tax bracket.The expected inflation rate is 4%.Maintenance and other expenses are 8% of the initial value of the house.What is the real user cost of your house?

Question

Quizplus · Accepted Answer

Real user cost of the house = (mortgage payment + maintenance and other expenses - tax benefits) / (1+inflation rate) 
= [250,000*(0.08/12)*(1-0.3) + (0.08*250,000*0.08) - (0.3*(0.08*250,000*0.08))] / (1+0.04) 
= $23,966.67 (rounded to the nearest dollar)

Therefore, the real user cost of the house is closest to $24,000, which is option B.

You Have Just Purchased a Home That Cost $250,000