Mortgage Vs Renting

By: David Nalin

Recent economic downturns have fairly well focused on the mortgage lending market, where terms have loosened allowing more people than ever in Australian history to buy a home. Although the slipping economic times cannot be blames solely on a requirement-reduced lending atmosphere, a return to more traditional mortgage lending practices have many people thinking their only choice for shelter is to rent.

Not for the Return
Traditionally, Australian home ownership is a national collective dream. For many, buying a home is not motivated as a money-making, short-term investment where the search for a favourable mortgage rate is the primary goal. It is, after all, a place to “hang your hat” and to “lay your head.” The emotional reasons for buying a home far outweigh others when seeking a mortgage to buy. There is no secret realising the many emotional advantages “owning” have versus continuing to rent. Although a secondary motive, wealth accumulation springs forth from the long-term investment made when obtaining a home loan.

A Better Idea
Although some financial advisors state people should consider homes as shelters and not investments, when the associated costs comparing the two are carefully examined, and potential buyers can afford all home-buying costs including a necessary and adequate down payment, it still makes greater sense to be a home owner rather than a renter. This is especially true if one’s personal financial situation allows for obtaining a low-interest mortgage. Additionally, there are many tax-deductible advantages when securing a mortgage for home purchase. For example, if a homeowner has an annual income of $50,000 and has secured a 30-year mortgage with a monthly repayment of $1,000, during the initial loan years, 80 percent goes toward interest. If in a 15 percent tax bracket, this can translate to an additional tax savings when itemising deductions.

Options to Both Buy and Renting
Many individuals opt not to seek home finance for a purchase. Instead, lease-purchase arrangements are made with property owners that allow “renters” the opportunity to accumulate a portion of monthly payments toward an eventual purchase. Depending upon contract details, this amount could be as little as 10 percent and, in some quite favourable situations, 100 percent of monthly payments could go toward the eventual purchase. This arrangement also accomplishes a couple of other things like providing time to accumulate the necessary down payment while locking in the purchase price at the time the lease-to-own contract is signed. Often a lease-purchase arrangement is predicated upon market conditions such as situations where a property owner has been unsuccessful moving the real estate. The property owner benefits from an occupied house that, essentially, should be well-maintained. The owner receives rental payments from occupiers with a vested interest in eventually owning the home.

Speaking Through the Numbers
Financially speaking, with a fixed mortgage instead of a variable mortgage, your housing costs remain stable, unlike rent which could rise based on a number of market situations out of your control. Furthermore, mortgage repayments, unlike rent, do not disappear. Rental payments go straight into a property owner’s pockets while mortgage repayments add to your equity available down the road for a child’s education or possibly to fund your own retirement.

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