If there’s one dilemma that most young people have it is this: should you rent or buy a home? It’s not just a case of doing what you want though, or at least, for most people it is not, it’s about taking your finances into account and being smart about the decision that you make. The question of whether renting vs. buying is best is a long-running one and not something that everyone can agree on. However, many experts believe that investing in property rather than renting property does make better financial sense.
The question is, of course, why have experts agree that paying a mortgage is a smarter financial move to make than renting? Studies have shown that statistically, buying a home works out 37.7% cheaper than renting a home, which is what makes it a far smarter financial choice. Taking that into account, what’s it’s vital that you understand is that various factors will impact the cost of purchasing your own home.
Taking all of that into account, you may still be feeling a little confused about whether renting vs. buying is best and why investing actually makes the most financial sense. To help you to better understand why investing in property is a better choice to make than renting, below is a guide to everything that you need to know.
Compare the costs of each option
The first step that you should take is to sit down and actually work out how much each option will cost you now and in the future. What you need to consider is that however, then you also need to look at the price in the long-term and what you are getting for it.
You need to look at how much you will be paying each month for your rent or mortgage. Traditionally, mortgage payments were far cheaper than monthly rental payments, however for people with low credit scores and high-interest mortgages, that is not the case. So it’s important to take the time to look into this properly. Then there’s the concept of what you’re getting for what you’re paying to consider.
When you pay rent, you are essentially paying to borrow someone else’s property for a month. Each rental payment simply covers you living in the property, and that’s it. Whereas, when you buy a house and pay a mortgage each month, which doesn’t just cover you living in the property, but it also covers the cost of buying more of the property. With each month’s mortgage payment that you make, you are owning a little bit more of the property that you are living in.
Looking at it like this, it’s easy to see why so many people consider renting to be a waste of money. Each year you are paying thousands of simply to borrow a property, whereas if you had a mortgage you could be spending that money buying more and more of the property that you live in – it’s easy to see that renting does not make as much financial sense as buying your property.
Understand how repayments will work
Despite the fact that it’s clear that investing in a property rather than renting one makes better financial sense, the concept of actually taking out a mortgage and buying a house can be extremely stressful as there’s just so much to think about, such as whether purchasing a property is actually affordable at the current time. It’s one thing knowing that buying a property is the right choice for you, but it’s completely another being able to afford to purchase a house and cover all of the costs that come with doing so.
When it comes to better understanding how repayments for your mortgage will work, you may find that a usable housing loan calculator is an extremely useful tool as it can give you a better insight into how affordable taking out a mortgage could be for you. These kinds of tools take into account your deposit amount and use them to determine how much you will be expected to pay per month in mortgage payments and what your level of interest will be that’s added onto your payments per month.
It’s essential that when it comes to investing in a property, that you have a solid understanding of what is what when it comes to the costs associated with doing so. It’s important to remember, that in addition to the cost of the deposit for your property, there are also other costs to covers, such as the cost of hiring an attorney, the price of having a survey of the property done, then there’s also the fees that have to be paid to the agency that’s sold your home. It’s not just the deposit cost that you need to consider, but also the cost of everything else that comes with purchasing a home.
Determine the monthly cost
The next step that you need to take is to determine whether the monthly cost of owning your own home is an affordable one. Other than getting home insurance, the chances are that actually, the cost of your monthly mortgage repayments may well be lower than the cost of paying rent each month, depending on the rate of interest that you pay and how long your repayment period is set to. For instance, the longer your repayment period, the lower the cost of your monthly repayments, and the shorter it is, the higher these repayments will be.
For anyone who is trying to keep the cost of their mortgage as low as possible, a longer repayment period is often recommended. You can find companies that offer repayment periods of up to 40 years, however, it’s important to bear in mind that often the interest that these companies offer is far higher than the interest offered for more common 25-year mortgages. What this means is that there are plenty of options for you to consider when it comes to making having a mortgage an affordable option.
What a lot of people find helpful is using a monthly budgeting app and putting in potential mortgage costs along with other expenses, such as bills and food costs, to determine if having a mortgage would be affordable to manage. It’s important that before you make a big financial decision like taking out a mortgage that you are sure that it is something that is affordable for you to manage.
Think about the future profits
Last but not least, it’s also important that you take the time to think about what investing in property would mean for your future. Unlike renting, choosing to purchase a house means having an investment for your future, because over time you are slowly buying more and more of your property from the bank or your mortgage provider until you own the whole thing.
It’s important to consider what this means for your future finances, such as the fact that potentially you could make a profit from your home if you improve it over time and its value increases and you then choose to sell. Having a home of your own could give you the financial support that you require in your future, such as being used to help pay for your children’s higher education or to support you as you get older. That’s what makes investing in property so amazing – the fact that it allows you to have a financial safety net as you get older. You can rely on that money and know that whatever happens, you have an investment to fall back on.
When it comes to choosing between renting or buying, there’s a lot that you need to consider. The fact is that as many experts have said, buying makes better financial sense as you are owning more of your home each time you pay your mortgage, whereas with renting you are simply paying to borrow the property and are not getting any type of collateral as a result. However, just because buying does make better financial sense than renting, that doesn’t necessarily mean that it’s the best option for everyone.
Should you choose to purchase a property, you need to consider what associated costs come with doing so, such as the fees, for instance. Then there’s also the cost that you have to pay every month for your mortgage, although this is usually lower than paying rent, it’s important to spend some time working out whether this is an affordable cost that you are able to cover. You can’t choose to invest in property if you aren’t sure that doing so is affordable for you, which is why you need to be clear on the costs that are associated with purchasing property so that you can make sure that they are affordable before you take a leap and make an investment.