Posted on: Thursday, June 10, 2004
Mortgage payments beat rent 'by long shot'
By David Bradley
Associated Press
It's sweaty palm time for apartment and home renters.
Nearly 60 million nonowners likely fret about the same thing: Do I continue to rent or leap into the housing market?
This inner debate takes on added urgency as interest rates inch upward. Every moment straddling the do-I-or-don't-I fence adds to the costs of buying. Even a quarter of a percentage point increase tacks extra dollars to monthly mortgage costs.
Still, there seems little reason to equivocate: even with a slight uptick, rates remain low enough to keep home ownership within reach of renters whose collective billions in rent checks build zero equity. But a surplus of misinformation blocks the path toward the American dream, according to one banking insider.
"Fear of the unknown makes people not move," says Gene Morris, a mortgage lending expert for Bank of America. "We know half of renters are intimidated by the home-finance process or are worried about large down payments. The mortgage process is a lot simpler and easier than it used to be."
He suggests renters meet with a financial adviser to separate fact from fiction when it comes to real estate and mortgages.
Misnomer No. 1 is the assumption borrowers must scrape together a huge chunk of money — 15 percent or more — as a down payment. Not so, Morris says. Three percent to 5 percent — and in some cases no down payment — is commonplace.
There's a big upside to calling a home your own. For one, interest on mortgage payments is tax deductible. Some states and cities tack on added inducements or tax credits reserved for homeowners. And even if home values grow by single digits each year, owners reap that gravy when the time comes to sell.
"People worry about interest rates, but they should be equally concerned with what happens to home values," Morris says. "Real estate values tend to go up, and it's all the more reason to venture into the market."
Some die-hard holdouts are less concerned with rates but overcome by fears of making a mistake in their first home. Others worry they'll be forced to settle on a home below their expectations.
"For most of us, home ownership is a great way to build personal wealth, and you can't do that with monthly rent checks," Morris says. By his estimate, $1,000 plowed into monthly rent is equivalent to a mortgage payment on a $130,000 home. That includes taxes and insurance.
Buying that first home may represent a leap of faith but it's usually just the first of at least several homes for most consumers. "The reality of real estate is that as values grow, you move onward and upward," Morris says. "But you have to start somewhere, and mortgage payments beat paying rent by a long shot."
