The most important question that young families, people who have moved to another city, and those who have decided to live independently ponder is: What to do about housing? Rent or take out a mortgage? This question doesn’t have a universal answer, as it depends on the specific situation, amounts involved, timeframes, and many other factors.
If you’ve been racking your brains over this question for quite some time, the famous method of Benjamin Franklin might come to your rescue. All you need to do is carefully weigh all the pros and cons of one of your fateful decisions over the course of a few days (or weeks). AdmiGram.com will guide you on what exactly to focus your attention on.
Take a clean sheet of paper, divide it into two columns. Let the first column be “Mortgage,” and the second one “Rental Apartment.” Then, further divide each of these columns into two parts. Label these columns as “Pros” and “Cons.” Try to, either by yourself or with your significant other, work through all the nuances of this question. After that, you’ll be able to analyze the situation and make the right decision.
Housing: mortgage or renting, what to choose
Weighing your financial realities
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First and foremost, you need to assess your short-term and long-term perspectives. If you or your significant other don’t have a stable job, frequently change your field of activity in search of better earnings, then the most optimal option for you would obviously be renting an apartment. This won’t tie you down to a specific place until you settle somewhere permanently.
If you have a reliable and stable source of income, you’re considering having a child, or you already have small children, then you should consider purchasing housing or taking out a mortgage. The only downside to a mortgage is that, in the end, you’ll pay the bank more than if you bought the property outright. Therefore, you need to carefully consider whether you can consistently save and accumulate your savings over several years. In some cases, it might be wise not to rush into a mortgage and wait for a couple of years.
There are situations where, if you calculate all the expenses, it might be more cost-effective to rent an apartment, while in other cases, it’s better to opt for a mortgage. For some, there might not be much of a difference. It all depends on the specific situation faced by young families and individuals. Next, let’s consider the most obvious pros and cons of a mortgage and rental housing that can guide you towards the right decision.
Pros and cons of rental housing
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Pros:
- Renting an apartment is cheaper than paying a mortgage.
- The ability to quickly change accommodation when circumstances require it (for example, when switching to a new job or moving to another city).
- No obligations to the bank, no risk of defaulting on credit payments in case of force majeure circumstances.
Cons:
- Rental apartments have a tendency to consistently increase in price; the property owner unilaterally raises the rent, putting you in a situation where you either agree or look for new housing.
- Limited autonomy: you can’t make significant renovations, often unable to have pets, and restrictions on inviting guests.
- Psychological aspect – having to pay a significant amount of money every month.
Renting makes sense as a temporary option in cases where you plan to “find your place under the sun” within the next few years, move to another city, or if you don’t have funds for a down payment.
Pros and cons of mortgage
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Pros:
- Investment in your own property, which can be passed on to your children or managed at your discretion.
- Almost all property rights are granted in mortgage real estate. It’s practically your home, where you can do anything from renovations to major reconstructions.
- You won’t find yourself on the street since the bank cannot unilaterally change the contract terms (e.g., annuity payments, etc.) and seize the property without substantial grounds.
- Psychologically more comfortable to live in your own dwelling, even though it’s essentially pledged to the bank.
- A wide variety of mortgage programs available: today, you can find favorable mortgages for almost any purpose.
Cons:
- High monthly payments, significant overpayment (if the borrower cannot make early repayments).
- The need for collateral and borrower insurance, as well as other expenses related to the mortgage loan processing.
- In case of borrower insolvency, there is a possibility of losing the pledged real estate. This likelihood is very small but still exists.
A housing loan has more advantages in the long run; the only hindrance is its high cost.
image on top: Jonathan Hanna / Unsplash
