A home is one of the most expensive purchases most of us will ever make during our lifetime. Whether you decide to rent or buy, either choice comes with its own rewards and risks. Homeownership offers many advantages over renting.
While owning your own home has many benefits, there are still risks to consider.
People, who have generally rented their whole lives, purchase a home for various reasons. Owning something of value with a chance of watching their investment appreciate is one reason. Purchasing a home to save money over the long-term is another.
Let's say you're currently renting a two-bedroom, two-bath apartment. Your monthly rent is $1,000. You find a two-bedroom, two-bath at a market price of $250,000 (roughly the national average.) You have $25,000 saved - enough for a 10 percent down payment. For the purpose of this example, you're looking to finance $225,000, which includes closing costs.
Using one of several mortgage calculators on the Internet, your monthly payment would be approximately $1,385 for a 30-year fixed loan at an APR of 6.20% (the national average is currently 4.50%). After taxes and appreciation in equity, your monthly payment over five years would average $499 per month.
Monthly Rent/Estimated Mortgage Pmt
Purchase Price of Home
Length of Loan
Years You Plan to Stay in Home
Yearly Property Tax Rate
Yearly Home Value Appreciation Rate
Price of Home After Appreciation
Remaining Balance After 5 Years
Equity in House
Tax Savings (28% Bracket)
Avg. Monthly Payment Over Time
Total Payments (Over 5 Years)
*Source: Ginniemae.gov. These calculations are estimates only. You should always seek the guidance of financial or tax experts before making any buying decisions.
The outcome could dramatically change should an unforeseen economic downturn or financial hardship occur (e.g., home improvement costs, catastrophic damage, etc.). While, no one can predict if home appreciation values will spiral downward, or if mortgage interest rates will rise, it's clear that under the right circumstances home ownership can be financially rewarding.