Nowadays, the question of what is more profitable is a mortgage or rent. Of course, this task will be more difficult than the famous Shakespearean expression. Although, if you look into this issue, then there is really nothing super complicated.
In any case, financial bondage for 10-20 years will not bring anything good. People are tied to the places where their homes are.
Usually, they deny themselves the things they want and entertainment to cover the necessary payments. And not always repay the mortgage totally, sometimes, they sell houses till repayment because they are not ready for such a lifestyle.
Probably, many will agree that it is also wrong to pay someone else’s uncle all his life, and it is almost impossible to save up for your housing with current prices. Or you will do that till retirement.
Rent Is Better Than Mortgage or Not?
Have you ever counted how much you overpay to repay the mortgage? How much money do you spend on borrowing when you need to make a payment but have no money? You can’t delay mortgage payment, because you will get a big fee!
What do people do if they can’t pay rent? You can ask an owner for extra time. Or consider a rental loan, it may be more profitable than a mortgage at a certain period of life or under the following circumstances.
Why people prefer to rent accommodations
1. Freedom to move
If a person is not quite sure in which area he wants to live, in what composition (there is uncertainty in marital status), finally, in which city or country, then there is no point in buying.
Let alone in a mortgage, real estate that will have to be sold in a couple of years and change to another home, and the operation may turn out to be unprofitable.
According to statistics, nearly 20% of Americans moved this year. They moved for different reasons: to be closer to family, due to work, or to find better conditions to raise children. But the first reason is the lower cost of living and renting.
So, could people change their place of living if they have a mortgage? No! Could people change their place of living if they rent apartments? Yes, yes, and yes!
2. No risk of losing the property
If a person finds himself in a difficult financial situation, and the bank does not want to go for restructuring, there is a risk of losing the apartment.
If due to the situation on the market, its price turns out to be lower than the debt to the bank, then you will have to either continue to pay or file for bankruptcy.
If we are talking about rent, you can always try to move into an apartment with a lower rental rate without prejudice to your credit history or debt to the bank.
3. Not owning an unfinished house
In the case of housing under construction, there is a risk of becoming the owner of an unfinished house or an apartment in a completed building, but an unfinished complex, which will make this option unattractive.
You will either have to rent an apartment, which is much more convenient, or you have to live there.
However, even if you buy an existing house on the mortgage, you can also face some problems such as noisy neighbors, poor sewerage or poltergeists.
4. Bigger family
If the family expands, it will be necessary to change the apartment to a larger one, for which mortgage payments may be significantly higher than rent.
Therefore, you will temporarily have to live in rented housing in order to save up for a down payment on a mortgage.
5. When taking out a mortgage is not financially possible
In the absence of official income, of course, a mortgage can only dream, so you will have to rent and save.
The same situation arises with an irretrievably damaged credit history, say, bankruptcy. Or with insufficient income or the presence of existing loans, the credit load for which does not allow taking out a mortgage.
Of course, it is better to think about your credit score in advance, but a lot of people spoil it when they apply for a student loan and repay it for several years. Credit score still is not the main reason because you can fix it anyway.
6. Freedom to change direction
You might want to have freedom of movement and not be ready to associate yourself with any particular place of residence and invest in real estate. Maybe you prefer to invest savings so that they bring passive income, which can be used to rent real estate anywhere of choice.
Moreover, you can see the country and live in different states or even abroad, choose the most suitable climate or the best city for your soul.
7. Buying doesn’t always mean passive income
If your mortgage is high, there is a risk that you will not be able to accumulate the required amount for passive income for retirement.
Even if the apartment remains in your ownership, your passive income should be the amount of money that would be enough for rent and for a comfortable life.
Sometimes, it is much better to invest the same sum in business or securities. To cut a long story short, not make liabilities buying the house, but make assets and get more money.
As a result, there is no universal recipe. You need to look at the situation in a complex and according to the circumstances, taking into account your other financial goals, plans for the future, current financial situation, and so on.
You should carefully identify all the pros and cons of renting and mortgage and evaluate which variant is the most suitable for you. Which advantages are important in your case and which disadvantages are unacceptable?
On the other hand, variability is flexible. Start by setting goals and a personal financial plan to answer the question “mortgage or rent?” Solve this issue based on the above arguments. We think you will make the right conclusions and make an informed decision.