Thursday, July 26, 2018 / by Robert Woessner
Owning vs. Renting
There are many benefits attached to having a house, including how its prestige and a certain peace of mind that can come with it.
Below are some of the main reasons why you should have your own house:
One of these outstanding advantages is that becoming a homeowner is simpler than ever. In other words, it is relatively cheaper to borrow money for a home now than it was a few years ago.
Interest rates vary through the years. Several years ago, interest rates were higher and it would have been more expensive to use these mortgage plans. Since these costs have been reduced, it is now easier and cheaper to own a house.
You Enjoy an Exclusion in Capital Gains
You will be able to enjoy an exclusion in capital gains after two years. The house you purchase must be your main residence.
When the house is sold, you can obtain profits of around $250,000 if you’re single, or around $500,000 if you’re married, without owing any taxes related to capital gains.
This may sound weird. Indeed, the worth of your home could increase despite the depreciation in the price of houses in the past years.
If your home was bought any time before 2003, there are chances that its value has appreciated and you get to enjoy the benefit of this tax.
Equity is Built Every Month on the House
Equity is the amount you can sell your house for, excluding the money you still owe on it. The amount you owe will reduce each month you make a mortgage payment.
This reduction you experience in your mortgage each month boosts your equity.
With the introduction of the new mortgage rules, every risky mortgage, such as interest-only loans and negative amortized, are totally eliminated.
The principle involved in mortgages is that there is a slight monthly increase in the portion of your principal payment. This is done annually.
Your equity is usually the lowest during the first payment, and highest at the last payment. Therefore, your equity increases as each month and each year passes by.
It is Cheaper to Buy a House than to Rent One in the Long Run
Things may be kind of frustrating in the beginning, due to the high interest rates of mortgage payments. At times, you may even think that it is cheaper to rent a house.
After a while, the interest rate will begin to decrease. You will discover the interest you pay is lower than what you would have paid for a rental.
You would probably prefer paying for your own home instead of helping your landlord pay for his.
Homeowners Enjoy a Standard of Living that is More Stable
There is always a pleasant feeling attached when you have your own house. This feeling brings a sense of freedom and independence.
The home you live in belongs to you and only you (or your spouse as well), you can do whatever you want. You have full control over the house. You do not feel daunted about increases in rent costs, or the risks of being kicked out of the house, and you are free to make improvements and changes as you wish.
Also, owning your home gives your children the guarantee of attending the schools in the area.
You never have to worry about a quick notice from the landlord to vacate your rented house or apartment for a variety of reasons you have no control of.
There is a Great Benefit Enjoyed by Homeowners in Tax Related Issues
There are significant tax benefits associated with buying a house. Both at the time you purchase it and for the duration of time you own the home.
You enjoy your first benefit the same year you acquire your house, discount points can be claimed on the loan, not minding who made the payment. What do I mean by points? Mortgage points are generally of two types: discount points and origination points. Each of these points is equivalent to one percent (1%) of your mortgage.
Discount points involve prepaid interest, are deductible tax-wise and can reduce your total mortgage payment.
While organization points are not deductible tax-wise, they can be negotiated and are not always required. Organization points are also able to compensate lenders.
The interest rate on your mortgage typically lowers by 0.25% as you buy points.
Over time you can deduct the interest paid on the mortgage from the taxable income. This makes it possible to achieve substantial savings at the initial stage of your mortgage.
The bulk of your payments is made up by interests. Although you may not be happy about paying taxes on a newly acquired home, it is possible for you to subtract these as well.
Any Maintenance or Improvement Made is for Your Own Good
Once you buy a house, you are not restricted by anyone to carry out maintenance work of your choice. It is your property, and you are responsible for any actions or changes you decide to make.
You can either employ the services of a contractor for maintenance services or you can handle it yourself.
You can only enjoy improvements made in your rented house for as long as you’re renting there. Once you leave, the homeowner benefits from the improvement.
Negatives of Owning
We know that owning a home is not always sunshine and rainbows, so here is a list of some of the disadvantages that come with owning a home:
· You are responsible for the repairs and maintenance. This means both sides, because it can go both ways.
While most rent leases specify that the landlord/owner is responsible for making repairs, when you own your house you need to remember to save some extra money for maintenance.
There is no way around that.
However, with the right team and a little positive thinking, maintenance can be fun.
· Considering the career and income uncertainty we are all faced with, people can definitely be put in bad spots throughout the years.
During these moments, it might be difficult to make the mortgage payments and keep the house.
With the increased flexibility of the job market, we are also required to be much more flexible than we used to be.
Owning a house will definitely give you roots and a sense of precious family security, but it also means you are tied to one region.
The Negative Aspects of Renting
· The monthly rent you pay goes to the landlord. It represents the fee you pay for using their property.
It will never amount to an investment, because no matter how long you stay there, the paid rent will never earn your property rights or ownership status.
· All the structural and decorative home improvements you make will have to stay behind when you move to a different place.
Additionally, you might need approval for any desired major redecoration.
We all like to pamper and improve our homes. However, if you are renting, you should definitely consider the cost-value of the desired modifications and if they are worth it in the long run.
· Renting does not build your equity.
With a monthly mortgage payment that is based on a principal and interest, the principal adds up to your initial down payment to increase your true ownership of the place and build your equity.
That does not happen with rents, where the entire payment is not an investment, but just a fee for using that place.
· Renting is unfortunately not an investment, but part of an increased living cost.
Mortgage payments represent true financial property investments.
They protect against inflation as they gather to form a concrete investment that you get to benefit from, after a certain amount of years (home market value goes up with approximately 5% every year).
In comparison to that, rent is simply a cost that adds to your monthly living costs. Rent payments have no investment components.
· You have no control over your rent, something that can make long-term budgeting very difficult.
As the rent amount might fluctuate, this big-budget part of your living cost can cause major changes in your life.
· Renting lacks the permanence and sense of security that a family has when having a place to call their own.
· It does not always give you the freedom to smoke inside premises, make home improvements, or even have pets.
· Renting is not always cheaper!
Considering the investment and the equity aspect of a mortgage, as well as the increase in rent prices and moving costs, rent can actually turn out to be more expensive than buying.
· Maintenance however, can greatly depend on the region you live in and how good you actually are with your tools when it comes to repairs and redecoration.
While this might be a never ending debate, there are a number of hidden benefits that only owning a home can provide.
We’ve already mentioned most benefits, but here are the biggest factors that drive people to home ownership.
· Your savings are not subjected to inflation, and neither is your mortgage payment!
If you opt for a fixed payment mortgage, both the price of your house as well as your payments will be locked to a fixed sum for the next 15 to 25 years.
That means that no matter the inflation, you will continue to pay your normal monthly mortgage rate.
Then at the end of the mortgage period, own a beautiful home for you and your family to enjoy.
· It is a great investment.
Once you buy a home, the price of the house is fixed to that specific amount.
This means the credit and mortgage payments will stay the same, no matter how much the value of your home increases.
There can be nothing better than leaving a home behind as a legacy for your children to enjoy.
An investment in a home can also mean an investment in the future of your children.There is a lot to consider when you want to buy a home.
Getting yourself to switch from renting to homeownership is a highly challenging, but an exciting and amazing decision to make. And no matter what people say, owning a house is the first step in the direction towards the home we've been dreaming of. Because, at the end of the day, as we all know, there is no place like home.