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.