Homeowners Spend Less for Housing than Renters
Posted July 13, 2012on:
If you’ve never taken the opportunity to do the math, it may seem as though homeowners spend more on housing costs than renters spend on renting. If mortgage payment and rent payment are comparable, for example, the homeowner may seem to pay more because of things like real estate taxes, property insurance and home maintenance. However, these common calculations don’t take into account the long-term costs of housing in renters versus homeowners. You might be surprised, then, to discover that homeowners actually spend less for housing than renters do when you consider the big picture.
Rents Continue to Increase, While Mortgages Stay the Same
When looking at comparable payments between rent and a mortgage, renters fail to consider the long-term picture. Statistically, rents rise every year or certainly every few years at least. In some areas of the country, rising rents can be quite severe. Likewise, if a neighborhood undergoes gentrification or some sort of popularity surge, rents can skyrocket to previously unheard of levels. When you buy a home, however, chances are that you’re locking your mortgage payment at a specific interest rate for the life of the mortgage loan, or if it is variable, your interest rate is probably capped at a certain level and will never exceed that over the life of the loan either.
When you lock a rate, you’re looking at the principal and interest portion of the mortgage payment that is the same for the life of the mortgage – it never goes up. Even better, though – when you pay your mortgage off, your out-of-pocket mortgage housing cost goes to zero — there is no mortgage to pay any longer. Yes, there is still real estate taxes and insurance to pay, although, since there is no longer a mortgage to pay, insurance becomes a decision you are in control of going forward. Either way, the mortgage out-of-pocket expense is zero. Renters continue paying out of pocket for the rest of their lives, and over a lifetime, the increase in rent can add up to hundreds or even thousands of dollars – versus the home ownership benefits of paying zero dollars in mortgage money after the mortgage is paid off.
Here’s a great rule of thumb to remember: don’t just do a calculation based on today’s costs when you’re considering renting versus buying. Instead, look at rising rent rates and consider the long-term costs of renting versus buying. You’ll find in almost every case that owning a home is cheaper in the long run.