Is It Better to Obtain a Home Mortgage or Rent?

For years, we have been told that owning your house is more financially beneficial than renting it. When you have a home mortgage, you put money towards equity each month. Instead of wasting your money in rent, you get to live in the house and have a secure investment. The slump in the real estate market, drop in home values and rocky economic times have made many people ignore that old advice and consider renting in lieu of buying.
Owning a home comes with financial responsibilities. Beyond the purchase price, you will need to pay for insurance, maintenance and property taxes. As a tenant, you will probably want to pay for insurance for your belongings, but it will be significantly less than if you owned the home and needed to insure the entire property and your belongings. Renters do not pay property tax and usually do not cover maintenance costs. Looking at those financial obligations, it appears that renting would be cheaper. As previously mentioned, though, as a renter you do not have any equity. Theoretically, the home mortgage payments you make each month as a homeowner (instead of renter) are building your investment via equity in the house. The claim that rent is wasted money is not exactly true, since you get to live in and enjoy the property. But, you do not build equity like a homeowner would.
If you buy a home with cash and purchase it at fair market value, a home is a solid investment when compared to renting. But most consumers do not buy homes with cash and opt for a home mortgage instead. The expenses incurred with a home mortgage may tip the scales in favor of renting in many situations. When a consumer obtains a home mortgage, the majority of the payments each month goes toward interest. Interest does not go towards equity; it is simply money paid to the bank. The percentage paid in interest is large for most of the duration of the home mortgage, but does go down incrementally as the end of the term on the loan draws nearer.
Determining whether you should buy or rent a property depends on your own financial situation. Analyze your budget and financial plan to determine what is best for you in the short and long term. In many markets right now, purchasing a property only for investment purposes is not beneficial financially. Historically, your returns will be much greater if you invest in the stock market. If you plan to live in the property, however, weighing the costs and benefits of renting versus owning should be part of your calculations. If you plan to be in a home for a long time, want a place to call your own, and can afford the costs of that particular home, owning may be the right choice.