Housing costs have soared over the years. And, while owning your own home may still be the American dream, many people are considering whether it would be less expensive to rent. There are four key elements to making that decision. Here is what is important: 1) the cost of the home, 2) the amount of down payment required, 3) the interest rate on the mortgage, and 4) your income tax bracket. Using the procedure below is a good way for you to weigh the economics. However, you must also consider personal preference and which option will provide you with more happiness or security.
The following list will help you calculate the costs:
- Write down the purchase price and financing terms for the house or condominium. Include the down payment, closing costs, and any points.
- Estimate your gross monthly costs as a homeowner, including utilities, maintenance, and repairs.
- Then, calculate your net monthly outlay. This is computed by taking into consideration any tax savings received by deducting mortgage interest and property taxes.
- Project what the proceeds would be after selling the property in five, ten, or twenty years.
- Calculate your total rent for the same period. If you invested the money you would spend on a down payment, closing costs and points, what would your return be?
- Compare the two sets of figures.
While the above method offers a rough comparison, you also need to determine the other nonfinancial advantages that home and condominium ownership provide.