Renting versus buying a home
With historically low interest rates and flexible loans, today, a monthly mortgage payment can cost no more than a monthly rent check. So, why rent when you can buy for the same price?
For starters, it’s not that simple. While owning a home has many benefits -- and they’re not all financial -- the cost is more than simply the mortgage payment. So which option is right for you? It depends on your financial situation, your plans for the future and, perhaps most importantly, the lifestyle you prefer.
Potential tax break
You can usually deduct mortgage interest on your tax return, which can mean big savings. If you’re in a 28% tax bracket and have a $150,000 mortgage at 7%, the first full year you own your home you’ll most likely be able to deduct more than $10,000 in interest. That translates into a tax savings of almost $3,000. In addition, even if you sell your principal residence for more than what you paid, you may not have to pay capital gains taxes. (There are limits, so consult a financial advisor for advice on your particular situation.)
You can build equity
No matter how much rent you pay, 100 percent of your apartment still belongs to your landlord. But every time you make an amortized mortgage payment, you own a little more of your house. Initially, interest makes up the vast majority of your payments, but the proportion is constantly shifting in your favor. If real estate values rise, you’ll be even farther ahead. The longer you plan to stay put, the more of this benefit you will reap.
Pride of ownership
A house may be an investment, but first and foremost it’s a home for your family. Even without the financial benefits, many people like the stability and sense of pride that comes with owning a home. You can renovate it to suit your own needs, plant a vegetable garden in the back and let the cat scratch the walls knowing there’s no landlord to impose his or her rules.
Less financial pressure
Low mortgage rates have, in recent years, narrowed the gap between the cost of buying and renting, but the overall cost of renting is still usually less. Insurance, taxes, utilities and maintenance can add 40 percent to a homeowner’s true monthly expenses. The upfront costs of renting -- typically just first and last months’ rent -- may also be much lower.
Make no mistake, owning a home involves a lot of time, energy and money. Some problems, such as a leaky roof or broken furnace, can end up costing thousands of dollars. When you rent, that’s someone else’s problem. Renters also avoid the stress that can come with carrying a large mortgage, including the worry that the housing market may take a downturn.
Many people feel tied down by the idea of a 30-year mortgage. Even if you would like to own a home eventually, renting may be a better option if your short-term future is uncertain; for example, if your job is not secure enough for you to take on a long-term commitment, or you’ve recently moved to a new city and you’re not sure whether you’ll stay. When you do decide to move, you won’t face the commissions, taxes and other fees associated with selling a house.
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