Long Mortgage Vs. Renting

When it comes to living arrangements, most people either rent their home or take out a mortgage to buy the home. Rental prices are usually slightly less expensive, but paying a mortgage builds equity.

Time Frame

Most rental agreements are signed on a yearly basis, and most mortgages are for 15 or 30 years, but longer terms are available for both.

Closing Costs

With a rental, you may have to put down a security deposit, but there are otherwise few closing costs. When you take out a mortgage, there are significant closing costs, usually expressed as a percentage of the loan.

Equity

With a rental, you do not build up any equity over time. Even if you rent the same home for 20 years, you do not accumulate any equity in the home. With a mortgage, over time the mortgage amount gets paid down which builds your equity in the home.

Freedom

With a rental, you are only obligated to the property for the term of your lease. After your lease ends, nothing ties you to the home. With a mortgage, you must still pay off the mortgage even if you move. To do so, most people have to sell the house, which can be a costly and time-consuming endeavor.

Considerations

In determining which option is better for you, you should consider your time horizon. The longer you plan to remain in the home, the more likely it will be that taking out a mortgage is the better option. However, if you have a short time horizon, chances are you are better off renting.

References

• Freddie Mac: Why Own?
• Realtor.com: Finance Calculators

Resources

• The New York Times: Is it Better to Buy or Rent?