Re:Danes Get 20-Year 0% Mortgages
by yazaddaruvala on Tuesday January 05, 2021 @06:18PM
(#25652617)
I'm sure most of you are well aware, but for anyone reading that isn't aware of the nuance:
> is monthly expense of renting vs monthly expense of buying
Note: "monthly expense of buying" is very different than "monthly cash flow of buying".
The "monthly expense of buying" is the monthly interest paid, taxes, and maintenance.
The "monthly cash flow of buying" is the monthly mortgage paid (principal and interest), taxes, and maintenance.
When deciding to buy a space, you need to use the "monthly cash flow" to ensure you don't default on the loan. When comparing buying vs renting a space, you need to use the "monthly expense".
Yep. That rent you pay is money you'll never get back. At least when buying you have a decent shot of someday recovering the principal (unless you bought at the peak and there's another housing crisis.)
I saw this vividly when I bought my first house. It cost $61,000. My mortgage was at 9%. Two years later, mortgage rates had dropped to 7%, and my house was worth 90,000 (state appraised value). If I had bought the exact same house two years later than I did, I would have had the same monthly payment. That stayed constant, and the interest rate change drove a change in total price.
Part of the reason is: What is your alternative? Typically, renting. What's rent? A monthly payment. So if you're looking at a buy vs. rent decision, a big part of the decision is monthly expense of renting vs monthly expense of buying.