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Rental vs. Mortgage

Rental vs. Mortgage

When talking with prospective homebuyers, one of the 1 st questions we ask is, “what do you pay in rent and what amount could you pay in a mortgage payment”? Many times the answer is well I pay this in rent so I guess I could pay about the same for a mortgage, but that comparison misses the difference between a rent expense and a mortgage debt. 

A rental expense is an ongoing obligation that WILL increase over time and gives no equity to the person writing the check. A tenant paying $2000 a month rent over 30 years will have paid his landlord over $720,000 and will have -0- equity. And that assumes no rent increase for 30 years which is not likely!

A homeowner on the other hand, will at the end of 30 years, write their last mortgage payment check and now own the property for a lifetime. They will be able to turn it into an income, pass on to heirs, or sell and pocket the cash. In addition, using a conservative growth rate of 3% annually, the home could be worth more than double what it was purchased for. 

Remember, a mortgage payment on a fully amortized loan is paying the debt down every month increasing the owner’s equity.

In addition there are possible tax deductions for the monthly interest and property taxes that can decrease the income tax you pay.

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Disclaimer: Please note that the resources listed by New Hope Community Church are not to be substituted for professional recommendations by your financial planner, real estate agent, loan officer, or other professional. New Hope Community Church is not responsible for the outcomes of the articles, videos, or ideas provided.

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