The Pros and Cons of a Home Mortgage Compared to Renting
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by: marciafreeman
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The old adage is that it is always better to own a house than to rent. When you have a home mortgage, you put money towards equity each month. The old advice was that rent is like throwing away money, since you do not get to build equity while you live there. 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. Your landlord is most often responsible for maintenance and upkeep, if you rent. Looking at those financial obligations, it appears that renting would be cheaper. But, as a homeowner, you would own the home and build equity. Theoretically, the home mortgage payments you make each month as a homeowner (instead of renter) are building your investment via equity in the house. The claim that rent is wasted money is not exactly true, since you get to live in and enjoy the property. Your rent payments, however, are not put toward equity like they would be if they were mortgage payments.
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.
Determining whether you should buy or rent a property depends on your own financial situation. Analyze your budget and financial plan to determine what is best for you in the short and long term. In most cases, it is not wise to buy a home in the current market strictly as an investment. Historically, your returns will be much greater if you invest in the stock market. If you plan to live in the property, however, weighing the costs and benefits of renting versus owning should be part of your calculations. 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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