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New House Decision - Essay Example

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New House Decision Introduction Economics is everywhere. People deal with it everyday, just by choosing to ride a bus or to take a walk is an application of economics. When planning to take the bus, one should take into consideration the available money, and the possibility of traffic jam…
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New House Decision
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New House Decision

Download file to see previous pages... This paper will assess the consequences brought about by economics on every major decision we made. Furthermore, this will show the important things to be considered in buying a house with a purpose of helping anyone who is in the quest of deciding to purchase one. Economic Principles The first thing to be accounted for is the opportunity cost. McConnell & Brue (2005) defined opportunity cost simply as the value of the forgone opportunity to obtain something else when coming up to a decision. Opportunity costs include the possible gains from investing the same amount of money in a business or stock market instead of using it to pay for the down payment (Derrick, 2009). To obtain a house would mean foregoing the chance of earning interest from a possible investment using the same money. It would also mean foregoing the opportunity of going to a postgraduate program or a doctorate one. There were actually several things one forgoes in deciding to buy a new house. Another thing to consider is the tradeoffs, from which opportunity cost arises. According to McConnell & Brue (2005), trade off is when you give up one thing to attain more of something else. It is more likely the same with the opportunity cost. The difference is that trade off is the decision itself while opportunity cost concerns the value of the thing given up. In decision making, most of the time, one has to choose an option rationally. In the case, one either has to choose between buying a house or not. If one will opt to purchase a house, his ability to buy another good declines. For example, if one chooses to get the house located near to his or her office, a part of the savings will be lost which could intently be used in buying clothes. So, she will buy fewer clothes, or worse, she will not buy anymore since the same amount of money was used to get the house. Another example would be the same amount used to buy a house could be spent in sending a child to a prestigious school. To others, purchasing a house would mean sacrificing the education of their children. To arrive at a decision, one has to consider the benefits over the costs. Since buying a house is a life-changing decision, one must think of it carefully. Purchasing a house offers the soon-to-be homeowner long-term financial-related benefits like tax savings. Some people even agreed that it’s the best investment to make. Quealy & Tse (2010) said that “property taxes, the interest part of the mortgage payment, and in some cases, a portion of the common charges, are tax deductible.” Basically, homeowners can deduct mortgage interest, points or the charges by the mortgage lender, equity loan interest of up to $100, 000, home improvement loan interest, mortgage tax credit, and real estate tax or often called as property taxes. Mortgage interest deduction can be the largest among all other deductibles since one can deduct up to $1 million. When one takes a loan for major house improvement, he or she can deduct the interest payment without any limit, provided that the said improvement adds value to the house. To sum it all, it will be a huge tax savings. However, these tax deductibles can only be claimed if deductions are itemized rather than standard deduction. Another incentive a homeowner can get is that the values of real estates, over the years, have appreciated. Along with this is the fact that the value of the house appreciates. The costs to be incurred in purchasing, ...Download file to see next pagesRead More
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