The old adage is that it is always better to own a house than to rent. The belief was that if you obtain a home mortgage to purchase your house, you will slowly build equity. The old advice was that rent is like throwing away money, since you do not get to build equity while you live there. The recent downturn in the economy has turned that old adage on its head, however, as many consumers have lost equity in their homes due to decreasing home values.
Owning a home comes with financial responsibilities. You will have to take care of the roof, plumbing, painting, gardening, insurance and pay taxes on the property. As a tenant, you will probably want to pay for insurance for your belongings, but it will be significantly less than if you owned the home and needed to insure the entire property and your belongings. Renters do not pay property tax and usually do not cover maintenance costs. If you compare those expenses, you will pay more as a homeowner. But, as a homeowner, you would own the home and build equity. Theoretically, the home mortgage payments you make each month as a homeowner (instead of renter) are building your investment via equity in the house. The claim that rent is wasted money is not exactly true, since you get to live in and enjoy the property. Your rent payments, however, are not put toward equity like they would be if they were mortgage payments.
If you buy a home with cash and purchase it at fair market value, a home is a solid investment when compared to renting. But most consumers do not buy homes with cash and opt for a home mortgage instead. The expenses incurred with a home mortgage may tip the scales in favor of renting in many situations. The average 30 year home mortgage has the homeowner dedicating almost 80 percent of his monthly payment to interest. Interest does not go towards equity; it is simply money paid to the bank. The percentage paid in interest is large for most of the duration of the home mortgage, but does go down incrementally as the end of the term on the loan draws nearer.
The decision to rent or own is a very personal one. Analyze your budget and financial plan to determine what is best for you in the short and long term. In many markets right now, purchasing a property only for investment purposes is not beneficial financially. Over time, your earning potential with that same money invested elsewhere might be much better. If you plan to live in the property, however, weighing the costs and benefits of renting versus owning should be part of your calculations. If you plan to be in a home for a long time, want a place to call your own, and can afford the costs of that particular home, owning may be the right choice.
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Information on home equity loan, read www.getsmart.com/refinance.