What's worth more money 'in-the-long-run'???

Question

Paying $1,000/mo for a mortgage and writing off the interest come tax time.....

or

Selling the house and paying $600/mo for rent?


Is the $4,800/yr worth more than the tax savings for a married couple with the interest deduction?

Answer 1

Well, if you say your mortgage payment is about 1000 per month, then it means your mortgage is about 160,000, assuming you put 10% down payment, so you probably are talking about a 175,000 house/apartment.
So, here is math, if this place appreciates in value at least 3% per year, which is probably the most conservative estimate, then it will increase it's value about $5250 in the first year, another $5400 year after, probably another $5600 a year after and so on...
Divide the lowest amount by 12 and you will see that even in the first year that $400 per month is well compensated and it only get better after that. I can promise you that if you stay in the place about 7 years, assuming reasonable market conditions, you will probably make up ALL of your mortgage payments, not just the difference between the mortgage payment and rent. I am actually ignoring any tax savings from writing off your mortgage interest as those may or may not exist depending on your situation, but if they do exist it's even better.
Now, if you think you will be selling a place in a year or two, then rent, do not buy, the reason is that there are costs associated with the transaction of buying and selling real estate, and those could easily wipe out any market appreciation, plus there are no guarantees that market goes up all the time. A real property always goes up in value in the long run, but year to year there could be short term swings in any direction.
Owning a real estate is exciting, and great way to build your networth. Good luck.

Answer 2

In the long run, you are better off with the house assuming you intend to live in the same location for a long time.
- you are paying on the principal as well as interest so eventually you won't have to pay for housing at all, except for insurance, taxes, and maintenance.
- Once you have a mortgage, it is fixed so it doesn't go up (except for taxes and insurance, etc.) Rent payments always go up over time and they never end until you die--you have to live somewhere.

In the shorter term, it is cheaper to rent. Also, the tax savings may be non-existent if the standard deduction is greater than the interest you would have paid and itemizing your deductions makes no sense.

Answer 3

Ultimately it depends on what you do with the difference between the $1000 a month you'd pay on the mortgage vs. the $600 a month you'd pay for rent. If you invested the $400 a month into some mutual funds, you could potentially end up in a better position. The problem is 99.99% of people do not invest the difference.

Answer 4

The house. It will appreciate and your mortgage will stay the same. Not to mention all of the tax benefits that go with homeownership.

Renting is a good idea if you will not be in that area for more than 3 years.

Answer 5

I would always want the mortgage over rent. Not only for the tax benefits, but for the investment. It looks better on your credit too.