| Renting Might Be More Expensive Than Paying A Mortgage |
| 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. Selling a home is even more expensive. Sellers usually end up paying about 7% of the purchase price as closing fees to real estate brokers, and title companies. This adds up quickly. That's $10,500 in fees for the sell of a $150,000 home. Because these costs are so significant, buyers want to make sure they'll live in the home for a period long enough to gain at least the amount of equity that they will require to sell their home. Home owners gain equity as properties appreciate and as they pay down the balance of a the home loan. During the first few years of a home loan a relatively small percentage of the payment actual goes towards principal. With 30 year fixed payments, most of the payment actually goes towards interest for the first 15 years. With 15 year fixed home loans, more than half the payment goes towards principal reduction in just the first year. 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. If you are planning on staying in the same home for a few years, the current low interest rates make buying a home a much better decision than renting. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. If you would like more real estate buying and selling advice, and If you would like more information about Real Estate in Utah, visit Real Estate Logan UT and Layton Utah Real Estate |