Is It Cheaper to Rent or Buy?
Home prices are going up, but in some areas of the country, it may be cheaper for you to save money for your own home by renting another year. According to Move.com, renters can save thousands on a lease in the nation’s largest tech hubs, compared to pre-pandemic prices. In February 2021, the U.S. median rent, which is calculated by averaging the median rent of the 50 largest metros, was up 0.6% to $1,452, well below its pre-COVID growth rate of 3.2%.
Meanwhile, the median mortgage payment, reports TheBalance.com, was $1,100 in 2020. Monthly mortgage payments are based on the loan amount, interest rate, and the term, typically 30 years.
Renters are required to pay hefty security deposits that are often not refundable. Landlords can raise rents when your lease expires. Homeowners make down payments which reduce the amount of money they need to borrow to purchase a home; they pay ongoing expenses such as property taxes, homeowner’s insurance, and private mortgage insurance in many cases. However, mortgage interest and property taxes are tax-deductible, if you file long form.
TheMortgageReports.com suggests that buying is a long-term investment, with prices going up over time. The amortization of your monthly mortgage means that at first little money goes to reduce the principal and the majority goes to pay interest to the lender. The longer you own, that slowly reverses until you’re paying mostly principal and little interest.
Over time, you’ll own something, whereas with renting, you get no ownership stake.
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