There are lots of folks out there that haven’t bought a home yet because they don’t feel comfortable taking on the commitment of a mortgage. What everyone needs to realize is that, unless you are living with your parents rent free, you are paying a mortgage – you’re either paying your own mortgage or your landlord’s.
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.”
Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, Christina Boyle, tells us of yet another benefit of getting 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.”
As a homeowner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. Many people have trouble saving money consistently, so what better way to force savings than in a investment you can live in! As a renter, you guarantee the landlord is the person gaining all the equity.
The illustration below shows the ever widening gap in net worth between homeowners and renters:
What does this mean for you?
Whether you are a first time home buyer or are thinking about buying a vacation home on the beach, owning might make more sense than renting, due to the fact that home values and interest rates are projected to rise.
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