Rent Or Buy? Either Way, You’re Paying a Mortgage

March 12, 2020
Last updated:
October 25, 2023
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Are you currently renting? Are you wondering whether you should rent or buy? Consider this: all that money that you pay in rent every month is essentially going in someone else’s pocket with nothing for you to show for it. 

And considering the fact that rents are rising every year, you might even be paying more in rent than you would be in mortgage payments if you actually owned your own property.

Mortgage Payments Go Towards Your Home Equity

When you pay rent, you’re paying someone else’s mortgage – your landlord’s. Instead, why not put your housing costs to work for you and consider buying a home and being an owner yourself so you can invest in your own savings and build your own wealth over time.

Let’s illustrate to see how paying a mortgage versus paying rent would compare. 

Let’s take the average price in Tacoma, WA as of March 2022, which is currently $490,811. Meanwhile, the current average rent in the city is $1,576 per month.

Now, let’s see how much you would be paying in monthly mortgage payments based on the average price of a home in Tacoma. If you put down a 20% down payment and took out a 30-year fixed-rate mortgage at today’s current rate of 4.42%, you’d have a monthly mortgage payment of roughly $1,961. 

As you can see, that’s just a bit higher than what you’d pay in rent every month. But the difference is that your mortgage payments are going towards your home equity, while your rent is going towards helping your landlord pay down their mortgage on the place you’re living in.

Building Wealth Over Time With Homeownership

Building home equity is one of the biggest perks of owning a home and can be a sound way to build wealth over time. And along with every timely mortgage payment you make, you can also take advantage of home price appreciation to further add to your home equity.

Just to illustrate, home prices in Tacoma have increased 20.6% over the past 12 months. That means if you’d bought a home just last March, you would have paid about $415,000, which means you’d make over $75,000 in just 12 months if you owned your home rather than rented it. If you’re still thinking about whether you should rent or buy, this might help nudge you in the right direction.Take Advantage of Today’s Low Rates

Mortgage interest rates have been very low for a couple of years now but are increasing. Right now, the rate for a 30-year fixed-rate mortgage is 4.42%, which is relatively low compared to where rates have been in the past. 

With rates this low, it makes sense to buy a home and secure a mortgage rather than continuing to rent. While rates may be low now, there’s no telling where they’ll be in the future. As such, if you’ve had homebuying on your mind, you may want to take the plunge and apply for a mortgage to buy a home sooner rather than later.

To help you understand how much more it can cost you as rates rise, consider the following illustration.

Using the same home prices and rates as in the illustration above, you would be paying $313,511 in interest over the life of the loan. But if rates increase by just 1% over the next little while, you’d be looking at paying $397,550 over the same time frame. That’s about $84,000 more in interest payments. 

Further, your monthly payments would go from $1,961 a month to $2,195, which is more than $200 more that you could have been using for other expenses. 

That’s why it’s so important to take advantage of low interest rates when you can. And rather than spending time and money renting, you could be tapping into today’s low rate environment and be a homeowner rather than a renter.

Imagine all the money that you pay year after year as a renter. All that money could be spent paying down a mortgage on an asset that will only increase in value over time rather than helping your landlord pay their mortgage on the place you’re living in.

Use Home Equity to Borrow Against

With homeownership, you may be able to reach a point where you can tap into the equity in your home as a loan. This is known as a home equity loan, and it works by borrowing against your home equity.

You can use the money you borrow from your home to be used to cover the cost of major expenses, such as home renovations, medical procedures, college or university tuition, or alternative debt repayment.

Since home equity loans are secured against the value of the equity in your home, your lender may be willing to offer a more competitive rate compared to other types of personal loans.

In most cases, you’ll need to have at least 20% equity in your home, or more depending on exactly where you live and what your financial profile is. This is something to keep in mind. 

This type of product is something that would not be available to you as a renter without a home under your name and is just another reason why owning a home offers more perks than renting

Are you ready to make the switch from “tenant” to “homeowner”? If so, get in touch with Sammamish Mortgage to see if now is the right time for you to buy a home!

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Sammamish Mortgage is a local lending firm serving the broader Pacific Northwest region including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria since 1992. Please contact us if you have any questions or are ready to apply for a home loan.

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