The Pros and Cons of a Home Mortgage Compared to Renting

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by: marciafreeman
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Word Count: 469
Date: Sat, 24 Jan 2009 Time: 5:46 PM
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For years, we have been told that owning your house is more financially beneficial than renting it. When you have a home mortgage, you put money towards equity each month. The old advice was that rent is like throwing away money, since you do not get to build equity while you live there. The recent downturn in the economy has turned that old adage on its head, however, as many consumers have lost equity in their homes due to decreasing home values.
Owning a home comes with financial responsibilities. You will have to take care of the roof, plumbing, painting, gardening, insurance and pay taxes on the property. If you rent, it would be wise to have insurance for your things, but it will be a lot less than insuring a house. Renters do not pay property tax and usually do not cover maintenance costs. If you compare those expenses, you will pay more as a homeowner. As previously mentioned, though, as a renter you do not have any equity. Over time, what you would pay in rent would hypothetically be put toward your investment in the home via your home mortgage payments. The adage that rent is like throwing away money is a little skewed, because you do have a roof over your head and get to benefit from living in the home. Your rent payments, however, are not put toward equity like they would be if they were mortgage payments.
If you buy a home with cash and purchase it at fair market value, a home is a solid investment when compared to renting. But most consumers do not buy homes with cash and opt for a home mortgage instead. There are costs involved with having a home mortgage that do not necessarily give it a strong advantage over renting. When a consumer obtains a home mortgage, the majority of the payments each month goes toward interest. That is money he does not get back and it does not add to his equity. The percent allocated to interest decreases over the term of the home mortgage, but not significantly until the end of the term on the loan.
Determining whether you should buy or rent a property depends on your own financial situation. Start by examining your income, expenses, overall budget and your plans for your financial future. In most cases, it is not wise to buy a home in the current market strictly as an investment. Historically, your returns will be much greater if you invest in the stock market. That being said, you have to live somewhere. If you plan to be in a home for a long time, want a place to call your own, and can afford the costs of that particular home, owning may be the right choice.

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