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Renting vs. buying: Financial bonanza not guaranteed By Pamela Reeves |
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With spring coming, many renters will be looking for a house to buy, expecting to get not only a good place to live but a lot of financial benefits as well. The truth is, the financial bonanza doesn’t always happen. Say you are paying $800 a month in rent. If you pay that for five years, it’s $48,000 out the window, real estate agents will tell you. Buy a house and you can deduct the mortgage interest from your taxes while you build up equity, they say. That’s true, but not the whole story. If you get a $120,000 mortgage at 7 percent, the monthly payment for principal and interest is $798, just about the same as the $800 monthly rent. After five years in the house, you will have accumulated only $7043 in equity and you will have spent more than that for property taxes and home owner’s insurance Since almost all of the monthly payments in the first 10 years of a mortgage go for interest instead of principal, some homeowners figure they’re effectively renting from the bank. Worse, unless you have itemized tax deductions that exceed the standard deduction - $7100 for married couples filing jointly this year and $4,250 for singles – the mortgage deduction won’t do you any good. All this is not to say that buying a house is a bad idea. Many people get physic satisfaction from owning. You can sand the floors, paint and wallpaper, put in granite counters and built-in bookshelves and add an addition to a house that you own. Your mortgage payments will remain the same unless you have an adjustable loan or refinance to get cash out of the house. And the home may well increase in value, especially if you stay in it a long time. But don’t be blind to the substantial and continuous expenses of home ownership.
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