| Making A Monthly Mortgage Payment Could Save You Money Over Paying Rent |
| Articles - Mortgage |
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Mortgage interest rates are currently at all time lows. This is making monthly payments for new mortgage loans more affordable than it would be to rent an equivalent sized properties.
Mortgage interest rates are currently at all time lows. This is making monthly payments for new mortgage loans more affordable than it would be to rent an equivalent sized properties. Interest rates for mortgage loans are at all time lows. Because less has to be paid for the interest portion of a housing payments, home ownership is more affordable. From a monthly payment standpoint this makes buying real estate less expensive than paying rent, without even considering tax benefits and equity gained. I currently own a condo that rents for $700 a month. Similar condos are currently selling for $90,000. At current 30 year fixed interest rates, with just 3.5% down, mortgage payments for a unit like this would be around $650 a month including taxes, insurance, and the monthly HOA fee. There are areas like this through-ought the country where the monthly payment is less expensive for owning than renting. Even though the monthly payment is lower for those buying condos like these, doesn't mean that it is the best interest for all buyers to own. While the monthly payment is $50 less each month, buying and selling has significant costs. Someone buying a $90,000 condo should expect to pay about $2,500 in purchase closing costs. Home sellers typically pay around 7% of the homes sales price in fees at closing. This can add up to a substantial sum of money; that's $10,500 in selling fees for a $150,000 house. Because buying and selling is expensive, you don't want to buy real estate unless you are going to stay in the same home for long enough to recover the fees through equity gains. Equity is gained in two ways. Equity is earned by paying down the balance of your home loan. Each month, a small portion of your monthly payment is applied as "principal." Every month the amount applied towards principal increases. With a $150,000 home loan, $2,340 in principal is paid off in the first year of a 30 year fixed mortgage. 15 year fixed loans will gain equity much faster. The same $150,000 mortgage would gain more than $7,000 in equity during the first year of ownership. In normal times, homes also gain value as they keep pace with inflation. Because most people buy homes with mortgage financing, this makes a leveraged asset investment. However, the current economy is not doing so well and the home values in most areas are expected to continue to drop for a few more years. For those that know they won't want to or need to move any time in the next decade, the all time low interest rates make buying a much better decision than renting. With a 30 year fixed mortgage buyers can have lower monthly payments than rent, and if they get a 15 year fixed mortgage, they are just 15 years away from actually owning a home. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. For more home buying and selling advice, and for more information about Real Estate in Utah, visit Logan Utah Real Estate and Real Estate in Layton Utah |