Buying versus Renting versus Mortgaging
So here are all my numbers.
The place I end up buying will be a condo, which means I need to pay taxes and condo fees in lieu of rent.
DOESN’T BUYING A HOME MEAN $0 IN RENT?
Yes and no.
This makes total sense to me because while I am no longer renting, I should really be setting aside money each month for the maintenance of my home (if it wasn’t a condo), and I would still have to pay property taxes each year anyway.
For me, paying condo fees is not a bad thing. It is so I can use the amenities, have the gardens landscaped, building maintained, garbage taken out (I don’t need to haul a single thing), a security guard, etc.
I ain’t mad.
RENTING VERSUS OWNING
Renting would cost me $1150 a month, plus another $700 in basic expenses, so I spend currently around $1850 a month for BASIC expenses.
(I obviously spend more, but that’s just because I want to, I don’t need to.)
If I end up owning outright, you can see I would save about 38.19% a month.
WHY NOT GET A MORTGAGE?
Reader Taylor asked “why not get a mortgage”?
It’s because I would pay much more monthly than renting and I would lose a lot more in interest over the long-term.
3 LOANS IN DETAIL
I did the math with 3 major mortgage loans in detail as shown above, with 2 mortgage amounts.
$360,000 for the first and $180,000 for the second and here’s why:
$360,000 mortgage – with my partner
Now, my partner is not planning on getting a mortgage, but let’s say he was and we were in it together.. it would be anywhere from $1649 to $2031 in mortgage payments each month, losing anywhere from $134,627 to $249,212 in interest that I’d be paying to the bank.
$180,000 mortgage – by myself
For the second loan amount which is more realistic, as it would be me getting a mortgage for my half of the amount, I would borrow $180,000.
I would lose anywhere from $67,313 to $124,606 in interest over 25 years and pay anywhere from $824 to $1015 extra a month over my condo fees & taxes.
OWNING OUTRIGHT VERSUS RENTING & OWNING WITH A MORTGAGE COMPARISONS
I did the math below with the $180,000 mortgage by myself as it is the most realistic.
You can see the same monthly budget amounts below for each of the 3 loan amounts of what I would be on the hook for as my new expenses of $1967.50 to $2158.50 a month.
I did the math with 3 rates (10 years fixed, 5 years variable, 5 years fixed) over 25 years (maximum) as amortization.
So if I took a mortgage of 25 years, it would all be more expensive than renting, let alone the cost of just owning the home outright instead.
Now when I look at owning outright, 100% paid versus owning with a mortgage, just the straight numbers alone (not including the total interest lost over 25 years), show that I am spending anywhere from $824.00 to $1015.00 a month extra than if I just owned out right.
Now if I decided to rent instead of getting a mortgage, I would paying $117.50 to $308.50 a month extra for the privilege.
Also not good.
RENT OR BUY IN CASH
Unless I rent or buy outright, it is a fool’s game for me to take a mortgage and not only pay more every month and increase my household expenses but lose $67,313 to $124,606 over 25 years.
It doesn’t seem like a lot, but I hate paying fees and I hate paying banks.
My only options were to continue renting… or buy in cash.
If I had done the math with renting a cheaper apartment, it is still a better deal for me to own outright than to rent as you can see below, I am saving 50% of that rent amount by owning outright and not having a mortgage.
So there you have it. Owning is cheaper if you are able to get what you want in cash for the location and building that you want.
We had been waiting all this time, renting, because we had wanted a deal (some sellers are totally out to lunch with their asking price), the market is low enough now for us to jump on it, and we plan on keeping this place forever.
Or as close to forever as possible.
I don’t foresee us moving, and if we truly needed to, we could always rent it out instead to recoup the loss and make a little income on the side.