Mortgage Affordability, Mortgage Calculators and Hidden Costs

There are several key figures to review when comparing the options of renting with that of being a homeowner.  Most borrowers often utilize a mortgage calculator to determine the monthly payment and to calculate income and expenses.  A mortgage calculator used to compare affordability can be used to compare the long term benefits of homeownership as compared to renting. 

A mortgage calculator can evaluate the payment difference between renting and owning a home and compare factors and projections that are far more inclusive than just monthly rent and loan payment.  Some of the cost comparisons a mortgage calculator used to measure affordability for a renter and a homeowner over time may include the escalation costs of monthly rent payments.  A renter will generally experience some rent increase over time.  The mortgage calculator can be used to enter the existing monthly rent payment as well as any estimated rent increases.  For example, a renter may start out paying $800 per month and experience annual increases of 5%.

A homeowner who purchases a home for $150,000 may pay a monthly mortgage payment of $1,100.00.  Overtime the homeowner will most likely have to pay additional real estate taxes as these costs rarely go down.  However, the increase in monthly rent is an increase to the total monthly payment and the increased real estate taxes is a portion of the monthly principal, interest, taxes and insurance payment.  The homeowner payment will become more advantageous overtime.

The homeowner has significant tax advantages with the potential for deduction of real estate taxes and mortgage interest.  Tax savings not shared by those who rent that need to be factored into the mortgage analysis with the mortgage calculator.  With the tax savings of homeownership, the homeowner’s payment may be less than the rental payment from the beginning or over time.

Potential appreciation may be a bit tricky to compare, but the potential for home appreciation is a clear condition not available to a renter.  Historically, appreciation has been a large advantage not just because of high rates of appreciation, but because of leverage.  The buyer, who puts 5% down to buy a home, is getting appreciation not in the 5% of their own funds that they may have put into the purchase but appreciation on the total home value.  These are dynamics that should be evaluated or experimented with by using a mortgage calculator.

It is equally important to be aware that rent payments are used to cover certain housing expenses of the property owner.   When you decide to purchase a home, you will have the responsibility for paying for these expenses. These are additional costs to your monthly mortgage payment and need to be included in a buyer’s budget estimate of property ownership.  These housing expenses may include; the home owners insurance, increased utilities, maintenance of the exterior and interior of the home.  Theses costs should be evaluated with same weight as other comparison cost when analyzing renting versus buying.  A mortgage calculator can be used to estimate the costs of maintaining a home with consideration for increases over time.

A mortgage calculator can be very constructive in assessing the advantages and disadvantages of homeownership.  The key to using these mortgage calculators is to make sure all of the comparative factors are evaluated.

This entry was posted on Friday, December 12th, 2008 at 8:40 pm and is filed under Mortgage Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.