Rent vs. Buy: Either Way You’re Paying a Mortgage

The thought of a mortgage to first time buyers is frightening.  It’s a 30 year obligation with big financial implications.  However, the thing that everyone needs to remember is that, unless you’re still living with mom & dad rent free, you are paying a mortgage; either your own or your landlords.

As a homeowner, each payment you make on your home is a form of forced savings, in that it puts equity in your home that you can use later in life.  That, with the appreciation on the price of your home, is an enormous investment.  If you’re renting, you are making that investment for someone else.

As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.  

That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

If that isn’t enough to convince you that buying is a great option, consider this:

(purely hypothetical)
If you initially borrowed $135,000 for a home, and for 7 years made your payments once a month, on time, you would pay around $17,515 on the principal of that loan, so, after 7 years, you would owe $117,485. However, you also have 7 years of appreciation.  So, with average appreciation, your homes appraised value would be $185,003, making the equity in your home after 7 years $67,518.  That is quite a bit back on an investment in just 7 years.

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