If You’re Renting A Home, You’re Already Paying Someone’s Mortgage; It’s Just not Your Own
Today we’re talking about the age-old debate of buying vs. renting. It’s a topic that some people get pretty passionate about. I’ve heard the argument that if you’re renting you’re throwing away your money. Depending on your circumstances, that may not necessarily be true, but let’s break down some of the facts behind the rent/buy debate.
The biggest myth about renting is that you're throwing away monthly money. And while some people may argue this point, it simply isn't true. After all, you need a place to live, and that always costs money in one way or another. But what is true about renting is that you aren't building equity with your monthly payments. . When you pay your rent each month, you’re simply paying for the cost to live in the home you’re renting.
It’s also true that as a renter, you may face rent increases each time your lease is up for renewal. Where your mortgage payment is generally fixed for the length of the loan. Renting may give you the flexibility to move whenever your lease is up. On the flip side, it may also mean you may have to move suddenly if your landlord decides to sell the property or simply decides not to renew your lease for some reason.
But the biggest difference between renting and owning a home? When you make a mortgage payment on a home you own, you’re building equity. And that’s simply not the case when you write that rent check to a landlord. What is Equity? Simply, it's the difference between what you owe on your property and what it’s worth.
So how do you use this equity? Well, let’s say you’re ready to buy your second home, something larger and a little more expensive. You now have $100,000 in equity that you can use towards a downpayment, which means you can buy a more expensive home while keeping your mortgage payments the same, if not lower.
Another way people use the equity in their homes is when they reach retirement age by using what’s called a reverse mortgage. With a reverse mortgage, you stop making monthly mortgage payments and instead receive monthly payments based on the equity in your home. How much you can borrow depends on your age, and how much equity you have. it’s good to know this is another benefit of homeownership that renters simply can’t take advantage of.
There is a meme “If you’re renting a home you’re already paying someone’s mortgage; it’s just not your own?” Is that true? Well, that rent check you write each month certainly isn’t building any equity for you. But you know who is building equity? Your landlord. If you think you might be ready to make the jump from renter to equity-builder, we can help.