Monthly Payments For Ownership Might Be Cheaper than Rent

Real Estate is usually looked at as a long term investment. Monthly payments on a mortgage loan are typically more than what rent payments would be. With interest rates at current all time lows, this is not the case in many areas.

Right now, interest rates for 30 year fixed mortgages can be obtained for less than 4.5%. Some people are getting 15 year fixed mortgages for less than 4% interest. This makes buying  Homes in Logan Utah less expensive than renting.

I own a townhome in Logan is currently renting for $700 a month. Comparable townhomes are selling for about $90,000. At a 4.5% interest rate, with a down payment of just 3.5%, the total monthly payment after taxes, insurance, PMI, and HOA fees would be around $650 a month. This is a monthly savings of $50 a month for someone buying a unit like this rather than renting it, and that doesn’t include any tax savings or equity gained.

Just because monthly payments are lower for those who buy houses right now, doesn’t mean that it is necessarily the best interest for every one to own real estate. There are significant upfront costs associated with both buying and selling Logan Utah Real Estate. When you buy a house, you usually pay about 3% of your mortgage amount up front, in closing costs. These costs primarily cover your loan and title fees.

When it comes time to sell a home, sellers typically pay around 7% of the homes sales price in fees at closing. This can add up to a substantial sum of money; that’s $10,500 in selling fees for a $150,000 house. Because buying and selling is expensive, it is not financially wise to buy real estate unless you are going to stay in the same home long enough to gain enough equity to recover the buying and selling costs.

Equity is gained in two ways. The guaranteed way to gain equity is by paying down the balance of your home loan. Each month, a small portion of your monthly payment is applied as “principal.” Every month the amount applied towards principal increases. With a $150,000 home loan, $2,340 in principal is paid off in the first year of a 30 year fixed mortgage. 15 year fixed loans will gain equity much faster. The same $150,000 mortgage would gain more than $7,000 in equity during the first year of ownership.

The second way homes can gain equity is through natural appreciation and inflation. Up until the crazy housing boom, homes consistently rose in value each year at a pace slightly above inflation. With the state of the current housing market, don’t count on natural appreciation any time during the next few years.

For those that know they won’t want to or need to move any time in the next decade, the all time low interest rates make buying a much better decision than renting homes in Logan. With a 30 year fixed mortgage buyers can have lower monthly payments than rent, and if they get a 15 year fixed mortgage, they are just 15 years away from actually owning a house.

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