Mortgage interest rates are currently at all time lows. This is making monthly payments for new mortgage loans more affordable than it would be to rent an equivalent sized properties.
Interest rates for mortgage loans are at all time lows. Because less has to be paid for the interest portion of a housing payments, home ownership is more affordable. From a monthly payment standpoint this makes buying real estate less expensive than paying rent, without even considering tax benefits and equity gained.
Three bedroom, two bathroom Logan condos are renting for $700 a month. Condos like these are selling for about $90,000. If someone bought a condo like this with a down payment of 4,000, and got a 4.5% interest rate on a 30 year fixed mortage they would have a mortage payment of about $650 a month. This includes Principle, Interest, Taxes, Insurance, and the Home owners association fee. In this case, owning is less expensive than renting.
Even though the monthly payment is lower for those buying condos like these, doesn’t mean that it is the best interest for all buyers to own. While the monthly payment is $50 less each month, buying and selling has significant costs. Someone buying a $90,000 condo should expect to pay about $2,500 in purchase closing costs.
Selling a home is even more expensive. Sellers usually end up paying about 7% of the purchase price as closing fees to real estate brokers, and title companies. This adds up quickly. That’s $10,500 in fees for the sell of a $150,000 home. Because these costs are so significant, buyers want to make sure they’ll live in the home for a period long enough to gain at least the amount of equity that they will require to sell their home.
Home owners gain equity as properties appreciate and as they pay down the balance of a the home loan. During the first few years of a home loan a relatively small percentage of the payment actual goes towards principal. With 30 year fixed payments, most of the payment actually goes towards interest for the first 15 years. With 15 year fixed home loans, more than half the payment goes towards principal reduction in just the first year.
The second way homes can gain equity is through natural appreciation and inflation. Up until the crazy housing boom, homes consistently rose in value each year at a pace slightly above inflation. With the state of the current housing market, don’t count on natural appreciation any time during the next few years.
For those that know they won’t want to or need to move any time in the next decade, the all time low interest rates make buying a much better decision than renting. With a 30 year fixed mortgage buyers can have lower monthly payments than rent, and if they get a 15 year fixed mortgage, they are just 15 years away from actually owning a house.
If you would like more real estate buying and selling advice, and If you would like more information about Utah Real Estate, visit Real Estate Logan Utah and Real Estate in Layton Utah
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