Home Mortgage Versus Rent

Home Mortgage Versus Rent

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For years, we have been told that owning your house is more financially beneficial than renting it. The belief was that if you obtain a home mortgage to purchase your house, you will slowly build equity. Instead of wasting your money in rent, you get to live in the house and have a secure investment. The slump in the real estate market, drop in home values and rocky economic times have made many people ignore that old advice and consider renting in lieu of buying.
Owning a home comes with financial responsibilities. Beyond the purchase price, you will need to pay for insurance, maintenance and property taxes. If you rent, it would be wise to have insurance for your things, but it will be a lot less than insuring a house. Renters do not pay property tax and usually do not cover maintenance costs. Looking at those financial obligations, it appears that renting would be cheaper. But, as a homeowner, you would own the home and build equity. Over time, what you would pay in rent would hypothetically be put toward your investment in the home via your home mortgage payments. The adage that rent is like throwing away money is a little skewed, because you do have a roof over your head and get to benefit from living in the home. But, you do not build equity like a homeowner would.
If you buy a home with cash and purchase it at fair market value, a home is a solid investment when compared to renting. Most people, however, obtain a home mortgage to purchase a house. The expenses incurred with a home mortgage may tip the scales in favor of renting in many situations. The average 30 year home mortgage has the homeowner dedicating almost 80 percent of his monthly payment to interest. Interest does not go towards equity; it is simply money paid to the bank. The percent allocated to interest decreases over the term of the home mortgage, but not significantly until the end of the term on the loan.
The decision to rent or own is a very personal one. Analyze your budget and financial plan to determine what is best for you in the short and long term. In many markets right now, purchasing a property only for investment purposes is not beneficial financially. Over time, your earning potential with that same money invested elsewhere might be much better. That being said, you have to live somewhere. If you are making a permanent move, ready to settle into a home that you own, and your short term and long term budget can handle the costs, buying might fit your needs better than renting.

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