Investing versus Renting

Invest in yourself. Find out how tax advantages play a bigger part than you might think.

Why Pay Your Landlord's Mortgage?

The only one who benefits from a rent check is the landlord. Renters never see that money again, while home-owners usually profit when they sell. In addition, renters can't use any of their rent payment as a tax deduction, like 'home-owners can. If you or someone you know is renting, it's time to put that rent check to better use!

The mortgage-interest deduction is probably the best financial argument for buying rather than renting. Consider this example: If you can afford a mortgage payment of $1,000 (principal and interest only), you can buy a house for $151,426 if you put 10% down on a 30-year mortgage at 8% interest. If your payments started in January, you would pay $10,862 in interest for the first year in the home. That entire amount is deductible on your federal income tax return! Assuming you are in the 28% tax bracket, you would save $3,041 in taxes, or $253 per month. So your $1,000 payment is really only $747 when you factor in the home-owner’s tax advantage. Can A Renter Really Afford To Buy? The real question is whether renters can afford not to buy. The tax savings alone make the purchase of a home a wise financial decision. But let's go a step further.

Using the same example, a 10% down payment would create an immediate equity of $15,142. Assuming the $151,426 house grows in value by just 3% a year, in five years it would be worth $175,544. The original loan amount would then be down to $129,565, yielding an equity of $45,980. In addition, remember the $3,000 tax savings every year. The total value of your equity and tax savings would be $60,980 after five years.

Pick A Loan to take advantage of the financial benefits of home-ownership, renters must first find out how much buying power they have. We can help. Call us for information about the whole range of mortgage options now available, including low- and no-down-payment loans, and programs that allow buyers to wrap home-improvement costs and closing costs into the mortgage.

Although some lenders allow buyers to use up to 41% of monthly income to purchase a house, beware of becoming house rich and cash poor. Be sure to budget for home-ownership costs beyond the mortgage, including expenses for: moving decorating and furnishing home-owners insurance property taxes home-owners association fees (if any) utilities-power, water, sewer, cable, ash pick-up yard tools, supplies and general upkeep home repairs, supplies, cleaning and upgrades. Today, home-ownership is wonderful for more people than ever before.