To Purchase or to Rent, that is the Question
Rent vs Own Calculator – To purchase a property or to simply rent it has become a central question for many people up and down the country.
Many people simply do not understand the critical factors that they need to take into consideration in order to arrive at a sound decision. Broadly speaking, there are two main reasons why one would need to tackle this question – the first, and most salient reason, is the personal and emotional factors. The second factor, however, focuses on the financial issue, which by and far, has greater input into the decision making process. It’s these financial factors that will be considered in this piece that should give you, the prospective tenant or owner, some degree of clarification on where you stand.
The very first step one has to take is to determine whether or not it’s possible to purchase a home in the first place. This may seem like very obvious advice on the face of it, however, once one examines it further, we find that many people inaccurately understand the stability or otherwise of their finances. This can lead to bad decisions. The factors you need to take into consideration are: whether you can afford the down payment (which can be as much as 20% of the value of the home), as well as knowing if you can afford closing costs (as much as 5%). These values will massively exceed that of the renting deposit and initial payments and thus play a crucial role in the decision making process.
For the sake of argument, let’s assume you take up residence and decide to purchase a new home. You need to factor in the maintenance costs that will inevitably crop up. These maintenance costs will include fittings and furnishings as well as the expected structural faults that may arise. In addition, it’s worth emphasising that nothing ever lasts forever and you will have regular costs in the overall maintenance of your house. If you compare this to renting, the landlord covers the cost of the maintenance while you’re almost guaranteed a fixed payment each month. Financial experts have ascertained that one should not exceed 28% of their gross pay on mortgage repayments and overall monthly debt repayments should not exceed 36%.
Thus, you can clearly see the turbulent wave of financial costs really hits hard when one decides to purchase a home. However, it needs to be noted that these are short-term consequences that we have hitherto analysed. In order to fully analyse your situation as effectively as possible, it’s necessary to engage in a long-term cost-benefit analysis; only this way can a more mature decision be determined. Most proponents of purchasing a home will point to things such as the investment value of the home as well as the ability to built equity while availing of tax breaks. However, upon further long-term analysis, we can see that the situation is not as rosy as these proponents like to conclude.
Let’s start by looking at equity. Proponents often cite that money spent renting is money wasted because you’re not building an equity base. However, this is overly simplistic. It’s important to recognise that equity takes time to build and the focus of mortgage repayments in the initial years is on interest repayments. In addition, if you choose to move home after only a few years, then you may have accrued very little equity and, upon selling, you may end up incurring a loss. With respect to tax breaks, it’s worth highlighting that tax breaks only apply where the amount of your itemised deductions is greater than your standard deductions. Ultimately, depending on your finances, you may be better off taking the standard deduction and therefore would have gained no tax benefits.
Proponents of purchasing homes also, as briefly mentioned earlier, point to long-term investment opportunities. While it’s certainly true that price appreciation can lead to selling at a substantial profit to subsidise a lifestyle at less expensive homes, it’s equally worth noting that there are no guarantees that your home will appreciate over time. Indeed, there are many areas across the country where homeowners have failed to sell their homes at equal to or greater than the initial purchase price. This, of course, depends on many varying and interdependent present economic factors, but we should not lose the overall sight of the argument that it swings both ways – appreciation as well as depreciation.
Rent vs Own Calculator
To conclude, the argument as to whether you should rent or purchase is much more complex than it is at face value. You need to do your homework with respect to all the aforementioned financial factors that will impact on your decision. In addition, there is much assistance you can gain via the web such as the use of calculators that help to determine the benefits of a range of different financial variables. In addition, these calculators can be used to evaluate your investment opportunities and whether or not it’s worth taking the risk in purchasing a home. Whatever your decision, try to ensure it’s based on solid arguments and not solely driven by the personal factors that were mentioned at the beginning of this article.
Call us today at 424 225 2167 for details. One of our mortgage professionals will help you get the best possible loan solution for your situation. We’ll be with you every step of the process and not hand you off to someone else.