A key reason many people choose to rent instead of buying their own home is their reluctance to sign their name to a long-term mortgage agreement.
As a renter, you’ve probably already made a commitment to a fixed schedule of payments for housing – but instead of a mortgage, it’s a lease or rental agreement. In reality, rather than being a negative, one of the major advantages of a mortgage agreement is that payments can be locked in for an extended period—which can work in your favour. Your Landlord can increase your rental payments year over year so chances are you will be paying more three or even five years down the road. Your mortgage agreement can actually protect you from the unexpected increases you may experience when you rent.
Still, some people are intimidated by the large amount of debt that is represented by a mortgage agreement. Yet if you added up all the rental payments you could expect to pay over a space of many years, you may find that going the mortgage route is actually the more affordable of the two options. Plus, at the end of the process, renters are left with nothing to show but a pile of receipts.
Rent of $1400 a month over 5 years = $84,000
Lets say you bought a home and the Mortgage was 250,000. Your amortization was 25 years and your rate was 3% fixed for a 5 year term. Your payment would be just under $1200, which gives you room for property tax and insurance to put you up to that $1400 mark. The amount you pay in interest over the 5 years is $34,600. A difference of almost $50,000. Even if your home only keeps its value after those 5 years you will have gained $50,000 in equity. Much better than the alternative of paying $84,000 to someone else.
Let’s not lose sight of the biggest financial benefit of all.
The simple fact is, when you rent, you’re building someone else’s ownership equity in the property where you live. On the other hand, when you buy a home a portion of your mortgage payment builds personal equity for you. If you decide to sell sometime in the future, that equity is something you’ll take with you as you make your next move.
Lastly, let’s not forget the creative freedom and pride of ownership that comes with owning your own property. When you buy, you decide about the home improvements and decor changes you want to make. You decide colour schemes and where to hang that favourite picture. And you’ll also earn the added equity that any such improvements may add to your home. Spending money to improve a rental property just puts value in someone else’s pocket.
With today’s low mortgage rates and some creative financing, the cost of buying a home may be lower than you think.
If you’re tired of paying off someone else’s mortgage for them, then why not call me, David Delorme for a no obligation consultation with myself and Mike Huber of Lending Max to help you find out how to make your dream of home ownership a reality.
David Delorme - Coldwell Banker Horizon Realty - 778-821-3885