What You Should Know
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Renting vs. Owning
Buying a home is one of the best investments a person can make. Normally, the value of the home increases at or above the rate of inflation, and the owner receives a substantial tax benefit as a bonus.
Home ownership is a method of savings because the owner is credited each and every month for the amount of principal paid on the loan. Plus, the owner is provided a place to live.
Example 1
Renter earns $35,000 a year with no tax deductions and is paying $600 a month rent. This renter purchases a home for $100,000 with 5% down. The buyer’s mortgage will be for 95,000 at 7% for 30 years. The total amount of interest and property taxes paid the first year is $7,999.43. As a result, this home buyer receives a $1,043 tax reduction, greater than he or she would have received if the buyer had continued to rent. The buyer’s effective monthly payment, after receiving a tax benefit is now just $741.87 a month.
Example 2
Renter earns $45,000 a year with no tax deductions and is paying $800 a month in rent. This renter purchases a home for $135,000, with 5%down. The buyer’s mortgage will be for $125,250 at 7% for 30 years. The home buyer’s total monthly house payment, including taxes, insurance, principal and interest is $1106.61. The total amount of interest and property taxes paid the first year is $10,676.22. As a result, this home buyer receives a $1,834.00 tax reduction, greater than he or she would have received if the buyer had continued to rent. The buyer’s effective monthly payment, after receiving the tax benefit is now just $953.78 a month.
Example 3
Renter earns $60,000 a year with no tax deductions and is paying $1,000 a month in rent. This renter purchases a home for $180,000, with 5% down. The buyer’s mortgage will be for $171,000 at 7% for 30 years. The home buyer’s total monthly house payment, including taxes, insurance, principal and interest is $1493.82. The total amount of interest and property taxes paid the first year is $14,494.97. As a result, this home buyer receives a $2,898.00 tax reduction, greater than he or she would have received if the buyer had continued to rent. The buyer’s effective monthly payment, after receiving the tax benefit is now just $1252.32 a month.
Note: The examples provided are based on a single person and the 1998 Federal Tax Law and the results may vary slightly depending on future changes in the Tax Code. Most states have State Income Taxes, which have not been calculated into the savings, so in most cases your savings will be greater than shown.
Those who rent instead of owning, lose a great financial benefit that is provided to each homeowner by the United States Congress.
Have questions? Email and agent directly.
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