Don’t Throw Money Away: Owning a Home vs Renting

Don't Throw Money Away; Renting vs. BuyingForbes recently published an article comparing renting a home, to buying one. Currently the mortgage rates are around 4.6% (http://www.bankrate.com). So what’s cheaper: renting that $1,500 per month apartment overlooking high street, or buying a $200,000 home at 20% down? Forbes argues that buying a home is 41% cheaper than renting. Based on their approach:

“We calculated the cost of buying and renting for identical sets of properties, including maintenance, insurance, taxes, closing costs, down payment, sales proceeds, and, of course, the monthly mortgage payment on a 30-year fixed-rate loan with 20% down and monthly rent. We assume people will stay in their homes for 7 years, deduct their mortgage interest and property tax payments at the 25% tax bracket, and get modest home price appreciation (see the detailed methodology and example here). Here’s what we found:

Buying remains cheaper than renting so long as mortgage rates are below 10.5%. At 3.9%, the current 30-year fixed rate according to Freddie Mac, buying is 41% cheaper than renting nationally. With a 5% mortgage rate, buying is still 34% cheaper than renting nationally. Mortgage rates would have to rise a huge amount – to 10.5% – to tip the math in favor of renting, which isn’t impossible. Rates were that high throughout the 1980s, but have been consistently below 10.5% since May 1990.” – http://homes.yahoo.com

Rental vs Buying ReportThe bottom line is that rates would have to rise to levels that haven’t been seen since the 80’s for renting to be cheaper than buying. That’s not to say that buying a home is for everyone. Securing a down payment can be tricky, as is getting approval on a mortgage. Forbes also cites that it’s not easy getting into the home you want before interest rates rise (hopefully they will stay at 4.6%). You can read the whole Forbes article here on Yahoo!

If you are renting and would like more information on buying a home, or if you would like some great folks to help you through the process of owning a home give The McVey Team a call!

 

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