Is it worth buying a house if the interest of the mortgage repayments is more than what you pay in rent??

Question

I should have mentioned I live in Australia (highest house prices per capita in the world...), in an expensive city (where house prices are 6x the average annual gross salary). I'm fully aware that a house that costs even 50% more in repayments to rent is a good idea, but i'm talking about purely the interest. I wanted to know if it was better to give the money to someone you rent off, or the bank (assuming interest is more or equal to rent).

Answer 1

Moshy,

I was a homeowner before I moved to Los Angeles. My mortgage did not make a dent in my monthly expenses.

When I moved to LA, my rent was double what my mortgage was. If I wanted to buy out here, it would be 4-6 times my rent.

Even after doing all the math for a bad neighborhood, I wouldn't be able to afford a mortgage and living expenses, such as lights, gas and food.

Personally, I'll wait until the market goes to the buyers' favor.

It's good to be a homeowner, but not if you are headed for foreclosure in a few months.

Answer 2

Property Values usually increase on the average about 4% a year. The last 2 years have been over 10% increases where I live. This year we will not realize an increase, but typically figure 4%. So your value is increasing! Plus ALL of your interest and your Property Taxes are tax deductible which saves you thousands! Often first time home buyers overlook this. I hear that the senate also passed the bill that PMI is going to be a tax deduction starting in 2007 and all it's waiting for is the presidents signature! SO let's say you rent the next 5 years..what do you have to show for it? NADA Now buying? You have a peice of real estate that has built in equity that you can sell or borrow against! Figure in the 4% and the tax deductions,or call your accountant and ask them what your writes off woudl be, and the fact that you actually have something of major value that is increasing in worth every year and then make your decision!

Vicki Watzlawick
Exit Platinum Realty
www.vickisdreamhomes.com

Answer 3

I do real estate investing and I also visit a lot of housing blogs, including ones that think we have been in a real estate bubble, so we debate this stuff at length.

A loose rule of thumb is that if you can buy a place and have a mortgage payment that is no more than 20-30% higher than renting the same place, it is probably okay to buy it.

However, I noticed that you only mentioned interest in your question. Did you mean principal and interest? Remember if you get a 30-year fixed rate loan, you pay a little principal (builds equity) and a lot more interest when you start the payments. If you take out an interest-only loan, it is what it is. No principal is paid down unless you choose to pay above the accrued interest for that particular month.....and eventually you will have to start paying principal on the loan.

Mortgage interest and property taxes are tax deductible, but you have to go over a certain threshold first. If you are single, these amounts plus other items reported on Schedule A need to be higher than $5,150 (if you are single) to start getting credit for the tax deductions. So figure out your monthly payment on the interest portion and multiply by 12, then add your annual property tax payments. If they are more than $5,150, then the difference will be tax deductible (i.e. you will save 25-30% of that difference in taxes).

Answer 4

Yes because of 3 things;

First, the interest is deductible from your Federal taxes; if you pay $900 for your mortgage, you could expect to get back about $2800. If you look at that in monthly terms, you get back $230 a month. So now your house payment is equal to $670 in rent.

Secondly, the value of most houses goes up. The average home that cost $120,000 twelve years ago could easily be worth 3 times that today. You can used the increased value of your home to fund important things in your life so as college for your kids or your retirement when you sell and move to a smaller home in your old age. If you live in an apartment all your life, all you do is make someone else rich.

Finally, home ownership enhances your credit. Home owners are consider more stable people and less of a credit risk. This could translate into lower interest rates (on bank loans) than an apartment dweller.

I hope this helps.

Answer 5

Heck ya. Why would you want to keep paying someone elses mortgage and/or making them more money. You will also build equity in the home. For the most part, you should not loose money on a home purchase as long as you keep care of it. Of course, the Real Estate market could go south but in the long run you should do okay. Heck, you could always buy it and then rent it out in the future and make money yourself :)

Answer 6

this is not unlawful to finish that, although this is going to likely be a breach of your loan circumstances. If stumbled on out then the valuables may be repossessed and bang go any probabilities of yet another loan for years. also, if a tenant is evicted by using the loan company then you actually will be subjected to a civil declare for unlawful eviction - that may be 5-determine damages. in case you get a BTL loan then even with the very undeniable truth that you'll pay more desirable in activity (approx 2% more desirable) you could declare each of the activity adverse to lease at the same time as calculating your tax. So, in case you get £15k a 365 days lease, pay £13k a 365 days loan, of which 11k is activity then you actually actually pay tax on £4k, no longer £15k. it truly is a rather reliable tax saving for being honest. in case you'll stay in the valuables and performance lodgers - not one of the above applies.

Answer 7

Welcome to home ownership in the U.S.A hee!hee! LOL!

Hey, if you come up with a different solution would you e-mail me?

Seriously a tip, try to pay one extra mortgage payment a year and write a letter stating you want it applied to the principle. Actually if you had an extra twenty five cents the would still have to take it.

Homes in europe were about 10,000 20 years ago, now about 3 million.

Remember population, inflation and dont forget the upcoming baby boomers will be retiring soon. I think real estate will boom too!

Answer 8

Ok You pay 600.00 a month for rent.
you buy a house and now you pay 700.00 a month...
The 600.00 for rent take that 600.00 and stand on the patio of you nice rented place and throw it in the air....
Now the 700.00 you pay for a mortgage...now your putting it the bank...gaining equity and getting something for your money, and if you want to add a door or paint the walls pink you can! and feel great about it!!
So you tell me now which is better? Merry Xmas!!

Answer 9

Yes. Usually your payments will go down if you get a decent loan.
Also you are making an investment that you will be able to cash in at a later date.

Rent is just making someone elses wallet fat.

Answer 10

Yes sure man !!!!!!!!!!!
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