Follow directions carefully, and type in reasonable values for all data elements. The numbers in the boxes now are default values. If you are not sure what value to type in to a particular box, you may leave the default value in place. Java runs on the client machine, so that if you mess around it will be your computer that crashes, not mine. Also, we can take no responsibility for any financial or programming errors in this code.

Mortgage Rate

This is the interest rate on a mortgage with zero points. Because the starting rates on ARMs are unrealistically low, it is recommended that you use a fixed-rate mortgage rate for this calculation.

Tax Bracket

This is your marginal tax bracket. It should be the sum of your marginal tax rate on Federal income tax and on state income tax. One complication is that if you take on a big mortgage, your taxable income may fall and this could reduce your marginal tax bracket. If your current income is only slightly above the level needed to put it into the highest tax bracket, you might want to use the next highest tax bracket here to get a more realistic estimate.

Also, because this is a JavaScript applet, the information will not leave your machine. So you are not sending personal information over the Net.

Property Tax Rate

Input the property tax rate for your jurisdiction.

Expected Appreciation

This is a critical assumption, and it requires a forecast. At what rate do you think that prices and rents will increase in your area for the next several years? In the late 1980's, people in California thought prices would go up 10 percent a year forever. Now, they seem to think that prices will decline forever. The most reasonable guess nationwide is that prices will go up with the general rate of inflation, about 2 percent per year. However, local supply/demand conditions tend to be more important than national averages in determining home prices.

rent, price

The rent is the monthly rent and the price is a selling price on comparable residences. It is more important that they be comparable to one another than that they be comparable to the place in which you live or are thinking of living. Do not compare the 2-bedroom apartment you are in now with a 4-bedroom detached home that you might buy. Instead, find a condominium complex where you can find the rental rate and selling price of similar units. Or look in the classified section of a newspaper for rental rates and asking prices of similar houses in a neighborhood.

NOTE: Do not include any dollar signs or commas. There are no edits in the program to take them out.

condo fee

If you are comparing renting an apartment with buying a condo, make sure to include the monthly condo fee.

years

This is the number of years you expect to remain in the house. This is important, because whenever you move you incur costs, including fees to real estate brokers. The longer you plan to stay in a house, the more likely it is that staying will be advantageous financially.

Results

Next, you click on "compute" and in the box you will see an evaluation of whether or not it is advantageous financially to buy a home. To see how the results change depending on the inputs, try putting in different numbers, particularly for expected appreciation.

The answers are on a scale that ranges from "stongly advise buying" to "strongly advise renting."