plonkee money an english-er's thoughts on personal finance

February 28, 2007

in response to renting or buying @ the simple dollar

Filed under: house — plonkee @ 5:37 pm

Trent at the simple dollar posted on comparing renting to buying a house. He suggested that when looking at similar standard properties,

  1. if rent exceeds the mortgage payment then a mortgage is (financially) better
  2. if rent exceeds the interest portion of a mortgage then its a grey area
  3. if rent is less than the interest portion of a mortgage then renting is better

In any case he suggests that if renting is a cheaper option, you should save or invest the difference towards a deposit. Trent does assume that your rent will only be less than the interest portion of the mortgage payment if you haven’t enough saved for a deposit which, I think, depends on how you define enough.

Anyway, I’ve compared my planned mortgage payment and rent to see how it stacks up.

Rent = £375

Mortgage = £493

Interest on Mortgage Initially = £400

It looks like I shouldn’t be buying at all, but continuing to rent. However, Trent actually states that you should consider the interest payment after 5 years as a fairer representation of the grey area. For my mortgage I have

Interest on Mortgage after 5 years = £370

Wow, thats a pretty close thing. I’m in the grey area by the skin of my teeth. Trent suggests that I consider the utilities, tax and maintenance issues to determine whether I should rent or buy. In my case, I can pretty much assume that the utilities and tax will be the same but maintenance and insurance costs will be higher.

I think this means that strictly financially speaking I’d be slightly better off renting and saving more money towards a deposit. Which goes to show that buying a house isn’t just a rational, financial decision for me. I already knew that it was a marginal decision but I want a place of my own and I’m prepared to pay for it.


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