Should you rent or buy?
Owning a home is the "American Dream" for most of us, but many people think they can't afford to buy or own a home. Actually, renting is often as expensive as owning in the short term and more expensive over the long haul. Here's why...
The long-term financial benefits of buying a home are so compelling; it makes sense for most people to buy as soon as they have saved the minimum down payment. Even if the mortgage payment is more than your current rent, it is worth scrimping on non-essentials now to have more later.
| Monthly Rent | Purchase Price* | Loan Amount | House (Principal + Interest) | Taxes and PMI** | Monthly Mortgage Payment | Annual Savings |
|---|---|---|---|---|---|---|
| $1,100 | $145,000 | $137,750 | $761 | $304 | $1,065 | $420 |
| $1,500 | $200,000 | $190,000 | $1,049 | $349 | $1,398 | $1,224 |
| $1,800 | $250,000 | $237,500 | $1,311 | $415 | $1,726 | $888 |
| $2,300 | $325,000 | $308,750 | $1,705 | $502 | $2,207 | $1,116 |
| $3,000 | $400,000 | $380,000 | $2,098 | $662 | $2,760 | $2,880 |
*5% down, based on the 5/1 Adjustable Rate of 5.25% APR with Zero Points. Rate for comparison only. This does not include home ownership costs of homeowner's insurance, utilities, or maintenance. PMI=Private Mortgage Insurance. PMI won't be charged if you borrow no more than 80% of the value of your house.
A Note About PMI and DCU - DCU will do everything possible to help you avoid paying PMI, even without the industry standard of 20% down.
Owning Is an Investment
When you rent a home or apartment, your rent can be as high or higher than a mortgage payment. But, the money you pay as rent is an expense. You have nothing to show for your payments.
On the other hand, owning a home is an investment that grows in value. As you make mortgage payments and the value of your property increases, your ownership (or equity) increases. You can use your equity to get money-saving home equity loans or as a down payment on your next home.
Owning Has Tax Advantages
Rent is generally not tax-deductible, but mortgage interest (including points) on your primary residence is. The mortgage interest deduction can significantly reduce your income taxes. (Go to www.irs.gov or your state's Department of Revenue web site for more information.)
- Stable Payments – Rent typically rises each time your lease renews – eating much of any annual salary increase. Your payments won't change at all with a Fixed-Rate Mortgage, and won't change for the first three to ten years with a Fixed/Adjustable Mortgage. As your income increases, your payments become more affordable. Property taxes and homeowners' insurance related to a home typically increase as your property value rises, but usually not as fast as rent payments.
- Pride of Ownership – When you own your home, you have the freedom to change and decorate it to suit you. That's often not true when you rent. Also some home improvements can increase the value of your home so you will get more when and if you sell it.
- It's Worth Making Sacrifices – The long-term financial benefits of buying a home are so compelling, it makes sense for most people to buy as soon as they've saved the minimum down payment. Even if the mortgage payment is more than your current rent, it's worth scrimping on non-essentials now to have more later.
Check out our Rent or Buy? Calculator. It allows you to compare renting versus buying by entering how much you want to spend a month and how much down you would put into your house.
We can help you find the right mortgage. To learn more call 508.263.6700 or 800.328.8797 or stop by any branch.
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Digital Federal Credit Union 220 Donald Lynch Boulevard PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797 |
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© 2008. Digital Federal Credit Union