The rent versus buy debate is a hot topic these days. If you are on the fence about whether to buy, having a clear understanding of mortgage payments and rent payments can point you in the right direction. It is not uncommon that your mortgage payments can be lower than your rent payment. The decision may have more to do with your lifestyle rather than with the financial resources, so the key is to understand the fundamental difference between making a mortgage payment and a rent payment.
1. Tangible Benefits Associated With Payments
- Gives you the ability to remain in the residence for as long as you want. (As long as you are not in foreclosure.)
- Helps you build equity (the difference between what you owe and what the property is worth) in your home.
- That equity can be used for debt consolidation, extra funds, home improvements; etc. and becomes a powerful tool for you.
- Gives you the right to live in the house for a specified time (length of your lease)
- You receive no other tangible benefits.
- It does not produce equity
2. Payment Fluctuations
You will not need to pay the mortgage for your entire life. A mortgage term is normally 10, 15 or 30 years. After which you will be debt free.
Rent, unfortunately, never goes away. The money you give your landlord is just for the living purpose and you get nothing in return.
Include principal plus interest payments, whereas, the interest amount can be tax deductible.
Fixed amount each month, however, a lease renewal takes place every year that increases your rent. Rentals aren’t tax deductible in most cases.
4. Maintenance Issues
The borrower is responsible for the normal wear and tear of the property and for its maintenance.
On the plus side, a tenant has no responsibility for the home or apartment’s major maintenance or repairs; a fair trade-off.
5. Homeowner’s insurance
Your lender will require you to purchase homeowners insurance policy for the mortgaged property and this cost will be wrapped in your mortgage payments.
As a renter, it’s optional for you to buy a renter’s policy and if you do purchase the policy, the cost will not be included in your rental payments.
Understanding the above key differences between a mortgage and rent payments can help you decide better if it’s the right time to buy or rent.