One reason that many people have decided against purchasing a home is because they feel as if they’ll be burdened by the responsibility of a mortgage. What they don’t stop to think about, however, is that regardless of where they are living, if they’re paying rent, they’re still paying a mortgage, just not their own. A recent paper published by the Joint Center for Housing Studies at Harvard University states:
“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt services to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does-as Americans intuit-end up making more financial sense than renting.”
Another thing that many renters may not think of is that when they own a home and have a fixed-rate mortgage, that payment isn’t going to drastically change during the duration of the mortgage. Likewise, owning a home and having a mortgage also helps build equity in their home; many renters are unaware that equity can be used down the road and is essentially viewed as a type of savings account for retirement. With renting, it’s the exact opposite; renters are subject to increasing rental amounts and fees, sometimes on a semi-annual or annual basis, all while contributing to the equity and savings-building of their landlord.
If you’ve determined that owning a home isn’t for you simply because you don’t want to deal with having a mortgage of your own, make sure you understand exactly where your money is going and what you’re giving up financially. Often times once a renter realizes what they’re paying towards they change their mind and decide that having a mortgage might be in their best financial interest after all.