Is a Mortgage Better than Renting?

We might find ourselves in the position where we are wondering whether we should buy ourselves a home. Most of us will have to get a mortgage in order to afford this and we may find ourselves wondering whether a mortgage or paying rent will be better for us. It is something that it worth considering very seriously as it can have long term consequences.

Costs of a mortgage

A mortgage can cost a lot of money. The biggest hurdle for most people is the deposit. You will normally have to put together a deposit of the value of about 10% of the house that you want to buy. This can be a considerable sum of money and finding that money or saving up for it can be pretty tricky. Some people manage to stay living with their parents at low cost and are then able to save up money towards a mortgage deposit. If they are already renting though, it could be tougher to save up for the deposit.

Even once the deposit is sorted out you will still have to borrow a great deal of money. You will be charged interest on that loan and this could really add up. The interest rates on mortgages can seem relatively small compared with other loan types such as those for people with bad credit but you have to pay it over a very long period of time. Mortgages can last up to thirty years and you will be paying interest on everything you owe each month. If you actually calculate how much this is then it can be a very scary amount! If the interest rate goes up, then you will have to pay more as well, which could mean that you will end up finding it difficult to manage the repayments.

Costs of renting

When you rent you will be paying your landlord each month for living in the home that they own. This means that you will always have to come up with the money that you need to pay them. You might always know what you have to pay, but your landlord will be able to change the amount that they charge you. How much notice they have to give you of this will depend on the rental agreement that you have with them. You will be able to move should the rent get too expensive although you will need to give some notice. It is likely that you will only have to give a few months though. This means that you can potentially quickly move should the costs of renting get too much.

Advantages of home ownership

Owning your own home have a big financial advantage. You will only have to make mortgage payments until you have repaid the money that you borrowed on your mortgage. Once you have completed this, you will no longer have to pay out anything. This means that you will be able to live in your own property and not have to pay out. A renter will always have to pay their rent.

Once you have a home you have money tied up in a property. Hopefully it will increase in value as well so your money will be working well for you while tied up. You will normally always need to live in the house, but it will leave you with something that you can pass onto your children if you have any or you will be able to sell it and pay to move into a care home if you need to when you get older.

Having your own home also means that you will be able to do what you wish with it. You will be able to decorate it to your taste rather than your landlords. If you want to make renovations you will be able to do it as well, so perhaps a loft conversion, extension, conservatory or things like this. Although you may still need planning permission, it will be likely to be possible to do this.

Disadvantages of home ownership

When you rent a property your landlord is responsible for any repairs as well as the house insurance. If you own the house then these things will be your responsibility. This means that you will not only have to pay out for buildings insurance, but you will also have to cover the cost of any repairs, renovations and decorating that needs doing. This can be something that a lot of people forget about and they may be shocked at some of the costs associated with this.

As you can see there are advantages and disadvantages of renting and having a mortgage. It is a good idea to think through all of these because you need to be completely sure of what you are getting yourself into. It can be aspirational to own a home, but it can be expensive, particularly in the beginning and if the house needs lots of repairs or renovations at any time when you are living there.

Should I Pay off my Debts or Build up my Savings?

Sometimes financial decisions can be really tricky. There are lots of things that we have to weigh up and it can be tough knowing which we should be doing. Decision making is not always easy and when there are facts and figures to look at and our financial future is at stake it can be stressful too. For example. If you are trying to work out whether it is better to pay of debt or build up savings there will be arguments in both directions.

Advantages of repaying debts

Having loans can be restrictive and so paying them off can be advantageous. For example, if you are having to make regular repayments then you will be less able to afford other things. So, once you stop making those repayments you will have all that extra money that you can use to spend on whatever you wish.

Having a loan will also cost money. You will be charged interest on the loan and that means that you will be paying that cost until you repay the loan. By repaying debt you will be able to stop paying these charges and that means that you will have that money to spend on more fun things.

Any debt that you have will show up on your credit record. This means that you may be keen to minimise your debt so that your credit record improves. This might be especially important if you are looking to get a mortgage or rent a home where your credit record will be key to whether you get accepted or not.

Some people also feel pressure when they have debts. They feel stressed that they have this financial burden and they really want to be able to pay it off easily. They wish it to be cleared altogether and so if they can repay it, they will feel a lot better.

Advantages of building up savings

It can feel really good to know that you have some savings behind you. To know that you have money available if you need it, perhaps if you suddenly get an emergency and need money or you have a bill you cannot afford or things like this. Having some money to fall back on can make a big difference to this. Just knowing that you have this can give you a feeling of security.

You can also earn interest on money that you have saved. How much you earn will depend on where you put the money and interest rates are very low at the moment. However, it is still better to earn some interest than to not get any at all. You can also find some accounts that will pay more interest than others and so it can be worth doing some research and comparing them.

How to decide which is best for you

If you have debts and savings or if you have debts and want to build up savings you will need to choose whether it is better to pay off the debt or build up the savings. It is worth doing a financial calculation first. Find out how much you are paying in interest on the debt and how much you are receiving in interest on the savings. If you are paying more on the debt, then it is better financially to repay the debt rather than use the money to save up. Be careful though as some debts may have charges if you try to repay them early. Contact your lender to find out whether there is an early redemption charge as this could be a lot of money and could make the difference between whether it is cheaper to repay the loan or not.

However, the decision will not just be financial. As explained above there are other reasons why we might want to have savings or be free of debt and so those are worth considering as well. It is very much a personal decision. You will need to think about how you will feel if you have no savings and whether it will make you feel insecure. You will also need to think about how you will feel if you repay the debt, even if it works out to be expensive and whether that sense of freedom will be worth it. Also, if it improves your credit score that could be worth paying extra money for.

If you do feel you would like to repay the debt then you need to have a plan. Consider whether you can afford those extra payments and whether you will have to cut down spending elsewhere in order to do so. If you have enough savings to pay for the loan, then this is great, but you might want to have a plan to pay back into those savings so that you can make back the money that you have spent.