Mortgage Goals: Saving Money vs. Renting

Posted by Laine Smith on 10/30/14 10:00 AM

Topics: Economy Home Buying

There is a reason homeownership is such a big part of the American Dream. With a home purchase, homeowners gain a sense of community and pride in their homes, a secure, permanent place of residence, and freedom to customize their living space on their own terms. Among lifestyle benefits, owning a home also helps owners reach one of the most beneficial mortgage goals: saving money.


In fact, buying a home is now 38% cheaper than renting in 100 of the United State’s largest metro areas, according to Trulia’s Winter 2014 Rent vs. Buy Report. For the tables to turn on a national level, rates would have to increase to 10.6% - a rate the mortgage world hasn’t seen since 1989. Want to know how homebuyers save? Check out four ways owning financially conquers renting.

1.  Building Equity

Equity is the amount of money your home is valued at minus what you still owe on your mortgage. When you make your monthly mortgage payment, a portion of your payment reduces your principal, and increases your share or “equity” in your home’s value. As home values increase over time, you build equity even faster.

Think of your monthly mortgage payment as a forced savings plan; as a homeowner, you are not only paying for a place to live each month but pocketing that principal in savings, as well. A renter’s monthly rent check is a pure out-of-pocket expense in which they make no financial gains.

2.  Tax Deductions

As a homeowner, you particularly reap financial benefits around tax season. In 2013, the mortgage interest deduction saved taxpayers $69.7 billion, according to the Joint Committee on Taxation. In addition to mortgage interest, homeowners can also deduct points, property taxes, private mortgage insurance and more.

Homeowners are also allowed to deduct the interest paid on home equity loans or home equity lines of credit, also known as a HELOC. This allows homeowners to do various things like shift high interest debt to their HELOC or finance home improvement projects for a low(er) interest rate and a tax deduction on the interest they pay.

Renters receive no deductions from housing expenses. Click here for more information on homeowner tax deductions and write-offs.

3.  Capital Gains Exclusion

Homeowners also gain when it comes to selling their home. If you buy a home and live in it as your primary residence for more than two years, you qualify for the capital gains exclusion. This means that you will not be required to pay any capital gains taxes on up to $250,000 of profit from the sale of your home for single taxpayers or $500,000 for married taxpayers.

4.  Saving Long Term

The decision to buy or rent is often preceded with: how long do you plan to stay there? As a homeowner, typically the longer you stay, the better you financially benefit, because homeownership is a solid hedge against inflation of interest rates, home prices, and cost of living expenses.

If you are a homeowner with a fixed-rate mortgage, you know the price you pay to have a roof over your head won’t change – no matter what is going on with the economy, interest rates, or rental market. Rental prices increase as demand grows stronger and cost of living surges.

Thinking homeownership might be the right path for you? Download our Mortgage 101 Handbook, a great resource for first-time homebuyers, or talk to one of our mortgage bankers.

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