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Mortgage Payments vs Rent and Your Future

Mortgage Payments vs Rent and Your Future

We are at all-time historic lows for interest rates which simply means borrowing money is less expensive than it’s ever been in US history.  I believed that the 5.50% mortgage rate I got in 2003 on a 15-year note was going to be the lowest rate possible.  Well, my 30-year mortgage rate was locked in at 3.125% on my current home, so I was wrong.  In a good way.  In other words, the principal and interest payments I’ll make from now on will be based upon the 3.125% annual interest rate.  Now, my property taxes and homeowners insurance will most likely continue to increase over time, but the “cost” of paying the mortgage is fixed for the life of the mortgage.  It’s a known number.  

Contrast that to signing a lease for a condominium or single-family home.  Most residential leases are set for a term ranging from six months to 2 years, with the average for 1 year.  As many of us have experienced, renewing the lease often means paying a greater amount of rent.  In fact, during these high inflationary times, with huge demand for housing in certain parts of the country, some people are seeing their rental rates increase by over 30% in a single year.  Even if your rent doesn’t jump quite that much, it’s hard to know what your rent payment may be in 1, 3, or 5 years from now.    

Buying a home versus renting is a complex decision that demands scrutiny of your financial position.  How long you plan to stay there, the cost to maintain the property, your physical needs, and of course location are just an overview of the items that need to be considered. 

However, today’s mortgage rates could be a real opportunity to lock in a low payment for your housing, accrue equity in the property more quickly, and avoid potentially large increases in your cost to rent.  

Since mortgage interest can also be tax-deductible, thereby potentially reducing further your cost of borrowing, it may well be worth having a mortgage payment to leverage your dollars (contrary to popular belief).  

If you already own a home and are either within 10 years of retiring or if you are currently retired, there may be a great benefit to having a mortgage at today’s low rates.  It can allow you to leverage your dollars for a 20-to-30-year period because the monthly principal and interest expenses are low and (if using a fixed mortgage), will not increase over time.  Inflation and market growth in your area can make this an even greater advantage. 

Having a mortgage is not necessarily a bad thing.  I hope this gives you some good information to consider as you look at your housing options.  Please contact me if you have any questions or would like a deeper discussion. 

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