Why Is Paying Rent Better That Paying A Mortgage Loan For Some People

Calendar mark  with Pay rentHaving a house largely remains as a top American dream but there are a lot of people who are still paying rent. it is great to have a place to call your own with your kids running around the yard while the dog is chasing that ball. It is also exciting to undertake small DIY projects around your own house. Doing the same on a rented house might get you in trouble with the landlord.

But the truth to the matter is that home ownership has been on a decline for the last eight years. According to NYTimes.com, it is now at about 63% putting the rental homes at 770,000 increase every year. A lot of people are renting out the place they are in compared to those who are investing on their own home.

You might be looking for different ways that would positively impact your financial position and renting has come up as one of those decisions you have to make. Housing is important because it is one of the very basic needs of people. You usually have two ways to go about it – rent a place or buy a place. Though there are some lucky ones who gets their parent’s homes provided they want to stay in the area.

So why are there more people paying rent rather than paying a mortgage loan every month? There are several reasons but what would be echoed by most is their lack of ability to save up for a down payment on the loan.

Apart from the lack of down payment, people are also postponing homeownership because they find a lot of benefits to renting. They think that their life will be so much easier if they rent instead of own their place. After all, homeownership entails a lot of responsibilities

Benefits of renting

Then again, what are the benefits of renting over owning a house? We can cite three specific examples.

Landlord takes care of repairs.

First of all, you do not have to burden yourself with repairs and maintenance issues in the house you are living in. You will appreciate this fact when winter is right at your doorstep. It is usually during this season that you have to make sure your doors and windows are in good condition to keep the cold outside and the heat inside. When you are renting, you do not have to worry about this. You simply have to call your landlord, tell them that you notice something in the house that requires repair and you let them do the rest. It is their job to hire the contractor to fix it and best of all, pay for it! A home repair can compromise your monthly budget. But if you are just leasing the place, this is a danger that you should never have to worry about.

Landlord pays the house insurance.

When you own your house, you need to buy insurance for it. At least, this is true if you got a home loan to buy it. The bank or financial institution that lent you the money will require you to get insurance – at least for a specific period during your payment term. But when you are renting your space, your landlord would have to shoulder this expense. Of course, USNews.com shares that there is a difference between property tax on a rental as against a house they are living in.

But one thing you might want to have is insurance on your things because if a fire breaks out, you would need to replace all of them. The landlord would have his house covered but that does not automatically include your belongings. That would be a premium you need to budget for but better than not having one and much lower than property tax.

Here is a video to understand insurance better:

What you are missing out on mortgage

These and a lot more reasons would definitely make you want to rent rather than get a mortgage loan of your own. There are a lot of things you need to remember before getting a mortgage and they might just be too much for you. But there are actually a few things that you could be overlooking as you stay in your rental. Here are some of them.

  • You would be paying rent your whole life. You might find it easier to rent but you need to remember that as long as you are staying there, you need to pay rent. Regardless if you have been staying in that house for 40 or 50 years, you need to pay rent. Another situation you need to understand is that there is a big chance that your rent will only increase over time. What you have been paying in the past year might not be the same for rent 10 or even 20 years down the line.
  • You are making your landlord rich. It might be convenient for you to just pay rent and let your landlord do all the worrying about the house but at the end of the day, you are just making them rich. Of course they are just filling in a housing gap but wouldn’t it be better if you are helping your finances rather than theirs? As you make payments on your mortgage, you slowly increase your equity on the house and simultaneously increasing your net worth as well.
  • You pay more in mortgage loans. But you don’t pay anything in a couple of years when you take out a mortgage loan. Housingwire.com shared that average mortgage loan is already at about $290,000. This means that the market is picking up again on price but regardless what the amount is, you can pay it off at some point in time. After that, you do not have to make anymore payments. You get to put that money elsewhere like actively pursuing a hobby or helping out kids and other family members with financial help.

Unique characteristics of your mortgage loan

You might be looking for more convincing that taking out a mortgage loan is better in the long run. If you are, then here are a few reasons why you might want to take up a mortgage loan in the future.

  • It increases your net worth. This is one of advantage a mortgage loan has over renting because as you make payments on the house, it simultaneously increases your net worth. It helps you improve your financial standing as you progress with your payment s.
  • Lowest interest rate. Your mortgage is a secured loan meaning your lender has a lien on your house. If you fail to make the payments, they can get the house back. It also for this same reason that your lender would put a lower interest rate on your mortgage. Because of this, your mortgage would normally have the lowest interest rate among all your debt expenses. So you can make only the minimum payments and concentrate on other financial obligations such as credit card purchases or payday loans.
  • Financial lifeline. When worst comes to worst and you have your backs against the wall, you can loan against the equity on your house payments. If your mortgage loan is at $200,000 and you are already halfway with your payments – you can talk to your lender on taking a loan against the amount you have already paid or equity.

While paying rent could work for some people, this is about balance and if you are at a point where you need to rent while saving up for a downpayment on a house then go ahead. If you are trying to get your credit score to improve to get competitive rates from your bank then rent in the meantime. If you need a few years to focus in your job and you need to get a place that is close to your office then rent.