Rent Or Mortgage - When Is The Time To Buy Your Own Home?
Only you can judge when the time is right to buy a home
, and there's no recipe. "Rent or buy" is a major question everyone has to face at some point. Obviously, you'll need to be secure enough to afford the mortgage and should be planning on staying in the house for a few years at least. Here are the pros and cons of renting or getting a mortgage.
Renting
Most people start off renting. That means they know their market, and can budget effectively for saving, but this is also the period when the budget realities have to be considered carefully.
Pros
No debt. This is a positive for many people, particularly in the early stages of a family and career.
Less expensive. Rental is usually less expensive, but if you're renting a house in a major city, that may not necessarily be the case, compared to some properties on the market. If there's a big difference between rental and a mortgage, it's a positive.
Landlord pays the rates. Rates vary a lot, depending on where you live. It's worth checking the rates in any area where you're intending to buy, to pin down the costs. Strata can also be an issue for mortgagees buying units, because it's a regular cost which affects the budget.
Cons
"Dead" money. Rental doesn't translate into equity. That does make a difference, given that equity increases greatly over time, and is positively affected by rising house prices.
Unable to make alterations. Leases do not permit alterations to premises, unless the landlord can be persuaded to make alterations.
Risk of rent increase. Rent rises can affect budgets negatively and create difficulties in saving.
Mortgage
Some people know how to manage mortgages to their advantage.
Pros
Paying off your asset. Houses can be very good investments in a rising market. The value of the house increases above the mortgage price, creating equity for the owners.
Able to make alterations. This can add a lot to house prices. It can also be a hedge against loss of value.
Probable increase in value. Statistically, the relative value of a house increases over time relative to the value of the investment in real terms.
Cons
Huge debt. Mortgages are a major financial commitment over time. They're an obligation, and lenders will enforce payments if required.
Most income will go to bank. This reduces the domestic budget significantly over a period of time. That can be a real problem, particularly with family and related expenses.
Repairs and renovations are your responsibility. Home owners assume full responsibility and liability for their premises.
House insurance
You can stay in control of all the other costs that go with owning your home easily.
Home and contents insurance is a good way to cover your situation as a home owner and make sure your asset is fully protected.
by: Hugo Shreuder
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