If you ask the average person whether you should rent or get a mortgage and make yourself an owner, it is likely that the answer will be the mortgage. However, mortgages also have their risks and are not always the better option. Let’s take a look.
A mortgage is an investment, while renting is an expense.
This is true. When you invest money in a mortgage, you are getting a property in exchange. This means that when the time comes, you can try to sell the property if you want and recover your money or even get more than what you invested.
On the other hand, with renting, the money you pay disappears from your wealth. In other words, you will not have any option to recover it.
These facts are what intuitively make people think that a mortgage is better when you have the option. We agree that they are very important things to consider. Now let’s see some advantages of renting:
- You stop when you want: A mortgage obliges you to pay. With renting, if your conditions change and, for example, you lose your job, you can easily leave the rental property, move to your mom’s or anyone else’s house, and cut that regular payment. With a mortgage, if you cannot pay, you can lose the property and face extra issues related to defaults.
- Renting is usually cheaper: Usually with the same amount of money, you can live in a better place by renting than by getting a mortgage.
- Renting may prevent you from having extra expenses: When you are not the owner, you can agree with your landowner that he is responsible to repair the damages resulting from the passage of time.
Then, when would it be a good idea to rent?
Answering this universal question is always risky. So let us say that first of all it will depend on your specific personal conditions. In case of doubts, ask your financial advisor.
We can give you some general ideas, though.
The basic idea you need to keep in mind is that the more stability you have, the more convenient a mortgage could be.
In order to start with a mortgage, you need to be sure that you will be able to make the payments throughout its long life. This means that you want to have a stable income that will not be cut in the coming years. You would also want a stable real estate market that makes you think that the property is going to increase its price with time. You would like to know that your company will not decide that you need to move to another city or country. In summary, you do not want changes.
If any of these changes above are likely in the coming years, then it is very important to try to forecast the evolution of the real estate market. If your prediction is that prices will increase, the mortgage may still be a good option because when you need to move, you will be able to sell the property for more than you paid for it.
If you have doubts about the real estate market, renting may be a better option. You will live with the peace of mind that you can move whenever you want with no further obligations.