Should You Buy a Home or Rent

It’s no secret that buying a home has many rewards. Beyond living the life you want to live, buying a home is a wealth building tool that one day will pay off. To reap those rewards you have to get out of renting and into a home. Let’s look at some of the financial benefits of getting your own home vs. renting.

What do You Pay When You Buy a $200,000 Home

If we take an hypothetical example home at $200,000 and look at a 30 year mortgage payment at a 4.25% rate you will see on an amortization calculator that the payment will be $984. Of that amount it starts off with paying $708 in interest and $276 in principal. That principal is what builds your equity in the home. That is essentially a savings account. The interest is essentially rent you are paying to the bank.

Over the life of the loan you will end up paying $154,197 in interest and you will have $200,000 invested in your home in equity.

Now what happens when we consider your rent? If we assume an equivalent payment amount of $1000 over 30 years you are paying $360,000 to a landlord and you end up with no equity in the home you are living in. You’ve essentially lost $205,803.

Interest Rates are Expected to Rise

We’ve been fortunate over the last several years to see extremely low interest rates. Those rates have risen some and are expected to climb again before the end of 2018. What does a ¼ percent rate hike mean for your purchase?

When we punch in the numbers at a 4.5% interest rate we see a payment of $1,013 per month and a total interest over 30 years of $164,813. That quarter point interest rate hike cost an extra $10,616. At a 4.75% rate its a $1,043 payment and a total interests of $175,586 which is $21,389 over our first figures.

What could you do with an extra $21,389 in your pocket? Waiting to move from renting to buying a home can cost you thousands of dollars over the life of the loan but you are also losing the opportunity to be building equity in your home.

Sometimes life is such that renting is the best option at the moment. Maybe your not sure if you are going to be living there in a few months or maybe you don’t think you have enough in savings to get a down payment together. There may be ways to help with this and get you started on a home sooner rather than later.

If you’re a first time buyer get in touch with me today and let’s talk about a plan to get you from paying thousands in rent to owning your own home. or 931-674-1727