Buying a house used to be easy. You found a home you liked, applied for a mortgage and then paid it off over 30 years. That’s not the case in today’s market. Mortgages today are harder to obtain, and favorable terms are more difficult to come by. That’s why many Americans are choosing to just rent a home and wait until the housing crisis improves. In some cases, they’re actually saving more money than they would with a mortgage.
It all comes down to how long you plan on living in the house. If your job requires you to move every year, you should obviously rent. If you’re planning on raising a family in the house you’re currently living in, you should buy. However, if you’re one of the 72% of Americans that plan on buying a house eventually, then you need to do some math.
Using this handy New York Times calculator, you can see that paying $1,000 per month to rent a home that is worth $172,000 is cheaper than paying a mortgage up until the fifth year of residence. At that point, a mortgage with a 5.5% interest rate and a 20% principal becomes exponentially more affordable than continuing to rent the house.
Since there are so many variables to consider with this type of calculation, there’s no rule of thumb that we can recommend following. What’s important to remember is that there will always be a point at which renting becomes more expensive than paying off a mortgage, even if you’re planning to ultimately move into a different house than the one you’re renting. Play around with the figures to find when your turning point will be. When you get your answer, you should decide whether you intend to live in the house for that long or not.
There’s no denying that more families are choosing to rent in this economy. They want to stay upwardly mobile until they find a job that’s secure enough and enjoyable enough to settle down. However, with mortgage interest rates at record lows, you could save more than $100,000 by taking the plunge now rather than 10 years down the line. In the end, it’s up to you to crunch the numbers, weigh your options and make the call.