Every time I speak about housing with my family or friends, there’s always somebody who tells me that I’m throwing my money away paying the rent, when I could just as easy afford a mortgage. And I wish it was that simple, but that’s a myth. Paying a mortgage doesn’t equal paying rent, there are a million factors that will make it a good deal for you, but it can also mean a total ruin. It depends on every person.
Buying a house (or an apartment) is not an option for everybody, it can actually be a very bad idea for some people. I’m going to try to explain it to you. First, you have to mind that if you don’t have a good credit score, you will find it hard to get a mortgage. Hence, your chances of buying a house will depend solely on your ability to restore your financial credibility, and that can take a long time. Second, you might have a lifestyle that is just not made for settling down in one place: you want to travel or you might be relocated by your company. And the third and most basic one is, simply, if you can’t afford it or don’t have the financial stability right now to take such a step.
As you can see, paying a mortgage isn’t even possible for some people and it can even be impolite to suggest it. But even if you don’t worry about these three points (lucky you!), there are plenty of things to consider before jumping into the real estate pool. I’ve tried to make it simple and easy for you with a Pros and Cons list!
Paying a Mortgage
Pros
- You accumulate equity, which is the difference between what you have already paid and what do you still owe. The more you paid from your loan, the more “yours” it is, and it gives you financial credibility to maybe ask for a bigger loan or making an upgrade to a better house.
- You get tax benefits. At the end of the fiscal year, there will be a deduction of the interest you have been paying.
- If you make your mortgage payment on time, your credit score will become impeccable!
- Once it’s paid off, you don’t need to do it anymore! It might be thirty years from now, but it will sure feel good having almost all your money for you!
- You can change anything you want, anytime you want. It’s yours!
- Your improvements to the home will increase its market value, in case you want to resell
- In some specific cases and regions, it can even cost less than renting!
Cons
- You need to have some cash to buy it in the first place, usually about 5% of the total value of the house. This is called a down payment.
- There are extra costs at the moment of the purchase: closing costs, home appraisal, home inspection… And they don’t come cheap.
- You are in charge of the repairs and maintenance costs. If you won’t have money to make an single urgent repair in your newly acquired home, think twice. You don’t want to know how’s life in winter without a water boiler, believe me.
- In addition to the monthly mortgage payment, you need to pay the homeowner’s insurance and probably plenty of city or regional taxes. Plus the bills themselves. It’s never just the mortgage.
- You need to be able to make a higher payment. Mortgage payments fluctuate along with the market, if you have an adjustable-rate loan. So you need to be prepared to afford it.
- If the prices lower down drastically, you might end up owing more to your mortgage lender than the market value of the property!
- It’s not worth it if you are going to move soon. The average time to make the expense worth is 5 years, so mind that.
- It’s not always easy to sell a home. It can take a very long time and it’s expensive, because you’ll need to pay the real estate agency and legal fees.
Paying the rent
Pros
- Relocating is way easier, since you just need to tell your landlord and then move. Moreover, if you can’t afford your rent anymore, you are not tied down, you can move to a cheaper home anytime. You just need to give a month’s notice in most countries.
- A security deposit will always be way lower than a down payment, so most people can afford it.
- You are not in charge or repairs and maintenance. Unless you actively destroy something, the owner should run with the costs.
- It’s easier to budget, as every month is the same amount of money.
- You don’t need to have an insurance. And if you want to have one, it’s cheaper because you only need to cover the contents, not the building.
- You don’t need to own furniture, as many apartments and houses are furnished.
- If you invest your savings in a portfolio instead of using it for a down payment, you might end up with more money in the long run!
Cons
- Rent may increase each year or every time you renew the contract. Depends too much on the real estate market.
- It’s not your property, you can’t change major things at your will.
- You depend on the conditions of your contract, it’s legally binding. For instance, you might not be able to get a pet.
- You won’t get back any real estate agency fees, plus your security deposit is left to the discretion of the owner.
- The apartment you like might have hideous furniture that the owner doesn’t want to get rid of. Also, you might have furniture from your previous place and no space for it in the new one. Or exactly the opposite: the flat is not furnished and you can’t afford a fridge!
- If your landlord decides he wants to sell the property, move in or he just doesn’t like your face, he can kick you out, which is always pretty inconvenient.
You see, buying a property might be good for you. And renting too! Renting doesn’t necessarily have to mean you are “throwing your money away”, as buying isn’t that a “scary” thing to do if you are prepared to. You just need to make an informed decision of what’s best for you, minding the real estate market forecast and the region you live in. And remember: some periods are good for getting a house, but some are not, as Business Insider reflects in this piece.
