Rent vs mortgage - Which one do you prefer?

[sweep_shot]

Both rent and mortgage have pros and cons. Rent allows you to avoid paying a fortune in interests. Mortgage allows you to own an asset.

I think that from practical point of view, going for rent makes better sense. It is because you keep more money in the pocket and you have more flexibility.

Here's one article that supports my view: https://www.forbes.com/sites/camilo...-renting-a-home-may-beat-buying/#ae0ada85b3c5.

Discuss.

 

[someone21]

It depends on where you live, and do you have a family? Assuming financial able and,

in a stable economy country , and have/will raise a family long term there, it makes sense to have hard assets like home... and thus mortage.

 

[kingusama92]

There are too many variables involved.

Things like your household income, savings, the city you live in (i.e. is the real estate market trending up or down?), your life situation (family, single), your willingness to deal with a landlord, how much can you put in as a down payment, and the interest rate on a potential mortgage.

In a good market, it makes sense to own a property as the asset will appreciate far more than your interest rate.

 

[sweep_shot]

In a good market, it makes sense to own a property as the asset will appreciate far more than your interest rate.

But, don't you think it is better to invest in stocks and commodities instead of going for mortgage? You end up paying a lot of money in interests. That money can be used to invest and make profit.

 

[PetroDollars]

But, don't you think it is better to invest in stocks and commodities instead of going for mortgage? You end up paying a lot of money in interests. That money can be used to invest and make profit.

This is what Buffet has always been saying.

But sometimes owning the property can be good if its an investment and you get a interest only mortgage with a ballon payment at the end and keep refinancing the asset with it on rent giving you monthly cashflow.

 

[sweep_shot]

This is what Buffet has always been saying.

But sometimes owning the property can be good if its an investment and you get a interest only mortgage with a ballon payment at the end and keep refinancing the asset with it on rent giving you monthly cashflow.

I would personally never go for mortgage because it is not allowed in Islam.

But, even if you remove the religion part, it still makes sense to not go for mortgage. The money you end up paying as interest is simply huge!

For example, a decent house in Toronto costs at least $600,000 minimum. In 5 years, you may end up paying as much as $60,000 in interest. That's money going down the drain.

It is much better to invest that money in commodities, stocks, and even a business. I would rather open a business with $60,000 than paying it as interest payments.

 

[JaDed]

Someone from GTA shouldn’t be asking that question, go check your real estate market from 2012-2020, even now its still holding up.

Stocks would never make you as much as flipping a hole would had in last 10 years.

Irrespective, the equity that you would had saved had you bought a home over stocks is itself worth it.

But i feel maybe right now market is high.

 

[sweep_shot]

Someone from GTA shouldn’t be asking that question, go check your real estate market from 2012-2020, even now its still holding up.

Stocks would never make you as much as flipping a hole would had in last 10 years.

Irrespective, the equity that you would had saved had you bought a home over stocks is itself worth it.

But i feel maybe right now market is high.

It is holding up but for how long? Price is rising every year.

Is this a market bubble? Will it crash? These are the questions.

 

[JaDed]

It is holding up but for how long? Price is rising every year.

Is this a market bubble? Will it crash? These are the questions.

I hope it had crashed last year..it didn’t, now any passive investor with liquidity is going to buy a lot (imo) stocks and real estate..

Real estate prices are inflated as hell

 

[sweep_shot]

I hope it had crashed last year..it didn’t, now any passive investor with liquidity is going to buy a lot (imo) stocks and real estate..

Real estate prices are inflated as hell

Let's say a house costs $620,000. You made a down payment of $60,000 (around 10%). Your mortgage period is 25 years.

By the end of 25 years, you can expected to pay around $225,364 in interest (interest rate of around 2.90%).

I think better option will be to rent and invest. Once you save up enough, buy the house outright.

If you go for rent, you save money on the interest. That's a gain just like equity.

 

[PetroDollars]

I would personally never go for mortgage because it is not allowed in Islam.

But, even if you remove the religion part, it still makes sense to not go for mortgage. The money you end up paying as interest is simply huge!

For example, a decent house in Toronto costs at least $600,000 minimum. In 5 years, you may end up paying as much as $60,000 in interest. That's money going down the drain.

It is much better to invest that money in commodities, stocks, and even a business. I would rather open a business with $60,000 than paying it as interest payments.

I was talking about it from the point of view its an investment you dont live in so can rent out, so even though you pay a fortune in in interests, you are positively cashflowing with rent income and still own the asset.

Its not the point of the topic to discuss islam or mortgages, but they are perfectly allowed in islam with jahil mullahs twisting the meanings of word for riba, which simply means overcharging or markingup, and nothing to do with loans but can be applied if the interests are caused to strangle the loanee.

Coming over to business, then yes i will agree but its alot better buying the business then starting it, as an example, you can purchase a £500,000 business with a 80% LTV loan, with a 3x valuation (with is the industry standard) it would be making £167,000/year in net profits, compared to a house for the same amount if put on rent would makes peanuts compared to it with the same investment.

 

[JaDed]

Let's say a house costs $620,000. You made a down payment of $60,000 (around 10%). Your mortgage period is 25 years.

By the end of 25 years, you can expected to pay around $225,364 in interest (interest rate of around 2.90%).

I think better option will be to rent and invest. Once you save up enough, buy the house outright.

If you go for rent, you save money on the interest. That's a gain just like equity.

If your house is rightly priced , based on GTA it would be a 1.2 million now minimum after 25 years, you can check house prices.

Are you saying just randomly investing in stocks you would make that much in difference.

Another thing that you are forgetting is rent goes up as well, check out zillow for estimates on those, you would end up paying more than 400 k on rent.

 

[sweep_shot]

If your house is rightly priced , based on GTA it would be a 1.2 million now minimum after 25 years, you can check house prices.

Are you saying just randomly investing in stocks you would make that much in difference.

Another thing that you are forgetting is rent goes up as well, check out zillow for estimates on those, you would end up paying more than 400 k on rent.

Wasn't just focusing on stock. What about business or commodities? Stock was just one example.

How are you sure it will be $1,200,000? It can happen but 25 years is a long time and it is hard to predict like that.

 

[Colorblind Genius]

Let's say a house costs $620,000. You made a down payment of $60,000 (around 10%). Your mortgage period is 25 years.

By the end of 25 years, you can expected to pay around $225,364 in interest (interest rate of around 2.90%).

I think better option will be to rent and invest. Once you save up enough, buy the house outright.

If you go for rent, you save money on the interest. That's a gain just like equity.

Theoretically, it sounds doable; however, practically it's a little different.

This is what a friend of mine did which I think was very smart.

He was on rent, and say his rent was $1500.00
He did all the math and saved enough money for the down payment, to make it 100% sure that his monthly mortgage amount would come out same as his current rent.

And what did it do?
The rent increases every year or so, but his monthly mortgage was a fixed 30 years which never changes.

The quality of life is where he took a small hit. His rented place was slightly bigger than the home he purchased. Which was OK and perfectly livable.

So if one wants to save enough money to put down 20% or so where his monthly mortgage is the same as his current rent then it could work out pretty good.

Look, the bottom line is, you gotta pay $1500 a month - either rent or in mortgage.
If you pay it in rent, it's all gone down the drain. If you pay it mortgage, you build equity and your down payment is yours at the end of the day.

Remember, when you pay rent, you are indirectly paying interest. You simply hand it over to your landlord and he gives it to the govt.
Land lord is not your "chachay ka puttar" who pays real estate taxes out of his pocket. He has already added it in your rent.

 

[sweep_shot]

I was talking about it from the point of view its an investment you dont live in so can rent out, so even though you pay a fortune in in interests, you are positively cashflowing with rent income and still own the asset.

Its not the point of the topic to discuss islam or mortgages, but they are perfectly allowed in islam with jahil mullahs twisting the meanings of word for riba, which simply means overcharging or markingup, and nothing to do with loans but can be applied if the interests are caused to strangle the loanee.

Coming over to business, then yes i will agree but its alot better buying the business then starting it, as an example, you can purchase a £500,000 business with a 80% LTV loan, with a 3x valuation (with is the industry standard) it would be making £167,000/year in net profits, compared to a house for the same amount if put on rent would makes peanuts compared to it with the same investment.

[MENTION=137142]JaDed[/MENTION]

This is what I was talking about. Going for business makes better sense.

There are risks of course. But, everything has risk and that includes real estate.

 

[sweep_shot]

Theoretically, it sounds doable; however, practically it's a little different.

This is what a friend of mine did which I think was very smart.

He was on rent, and say his rent was $1500.00
He did all the math and saved enough money for the down payment, to make it 100% sure that his monthly mortgage amount would come out same as his current rent.

And what did it do?
The rent increases every year or so, but his monthly mortgage was a fixed 30 years which never changes.

The quality of life is where he took a small hit. His rented place was slightly bigger than the home he purchased. Which was OK and perfectly livable.

So if one wants to save enough money to put down 20% or so where his monthly mortgage is the same as his current rent then it could work out pretty good.

Look, the bottom line is, you gotta pay $1500 a month - either rent or in mortgage.
If you pay it in rent, it's all gone down the drain. If you pay it mortgage, you build equity and your down payment is yours at the end of the day.

Remember, when you pay rent, you are indirectly paying interest. You simply hand it over to your landlord and he gives it to the govt.
Land lord is not your "chachay ka puttar" who pays real estate taxes out of his pocket. He has already added it in your rent.

There is equity but a huge portion of that down payment goes to interest (specially during the first 5-10 years).

I think you end up paying more in a mortgage unless you have a massive down payment.

 

[ElRaja]

Both rent and mortgage have pros and cons. Rent allows you to avoid paying a fortune in interests.

you aren't paying interest directly, but your rent payment covers the interest your landlord is paying. its the actual principal you don't pay, which is why you never own the property.

renting is fine is your middle aged and of limited means, but if your younger than 40 and can afford it, having a house you can pay off by the time you are retired is a huge comfort.

 

[Colorblind Genius]

I don’t think you got the point.

You are shedding off $1500 a month for the next 30 years. (Given that the landlord won’t increase it on you)

If you pay it in rent, you are left with nothing after 30 years.
If you pay it in mortgage, you not only own the home but also live for free at 30 years.

The trick is, your current rent and expected mortgage amount should be the same.

 

[Colorblind Genius]

On the other hand, yeah, if you are lucky and smart and very good at doing stock trade then you can take chances to invest the down payment (that you were gonna make to buy the home) and play with it in stock market. It could greatly benefit you or sink you altogether, who knows?

Everyone should take a decision based on their personal situation and personal skill set. There is no one size fits all rule here.

 

[sweep_shot]

On the other hand, yeah, if you are lucky and smart and very good at doing stock trade then you can take chances to invest the down payment (that you were gonna make to buy the home) and play with it in stock market. It could greatly benefit you or sink you altogether, who knows?

Everyone should take a decision based on their personal situation and personal skill set. There is no one size fits all rule here.

Exactly!

Every situation is different.

I am unlikely to ever go for mortgage. I don't like debt. I want to buy outright or get into other stuffs.

 

[sweep_shot]

you aren't paying interest directly, but your rent payment covers the interest your landlord is paying. its the actual principal you don't pay, which is why you never own the property.

renting is fine is your middle aged and of limited means, but if your younger than 40 and can afford it, having a house you can pay off by the time you are retired is a huge comfort.

I don’t think you got the point.

You are shedding off $1500 a month for the next 30 years. (Given that the landlord won’t increase it on you)

If you pay it in rent, you are left with nothing after 30 years.
If you pay it in mortgage, you not only own the home but also live for free at 30 years.

The trick is, your current rent and expected mortgage amount should be the same.

Yeah. Got it. There are many variables involved. Not very black and white.

 

[sjahmed23]

Assumption is being made you only have 30 year mortagage. Alot of people have 15 year mortagages aswell with lower interest rates.

 

[Bigboii]

It's a hard decision to make especially as a practicing Muslim you know you want to be a home owner but you don't wanna do interest definitely a tough choice to make

 

[Justcrazy]

It's a hard decision to make especially as a practicing Muslim you know you want to be a home owner but you don't wanna do interest definitely a tough choice to make

A practicing Muslim should understand that all the shariah laws will be implemented if you have authority, and without authority, Islam is zero. It is only a religion, not a deen .

 

[Bigboii]

A practicing Muslim should understand that all the shariah laws will be implemented if you have authority, and without authority, Islam is zero. It is only a religion, not a deen .

Wait what I didn't get it

 

[light]

Mortgage (only assuming it's a duplex or above). It allows the owner to pay very little/or free stay. However, there are obvious downfalls and risks of owning a property with renters.

 

[RWAC]

It depends on the market and your personal and financial situation.

Sometimes, rent is massively cheaper than carrying a mortgage + other costs that come with being a homeowner. You can make a case for renting, and putting the difference in the stock market.

But if rent is ~equal to mortgage + carrying costs, you're probably better off getting a mortgage.

If you think of it, rent = paying down someone's mortgage + paying the interest on it and having no asset at the end of 30 years. With a mortgage, you end up building equity through forced savings, and have an asset at the end of 30 years.

I recently bought a condo, but chose to not live in it and rent it instead, because my current rent is ~30% below market, so it makes sense for me to stay put. When my rent rises to the market rate eventually, it'll probably make more sense to move in to my own condo.

 

[Gilly]

I paid my mortgage off 15 years ago. I dont have to pay anyone anything other than services. If I rented I would be still paying rent.

 

[saeedhk]

Mortgage is better than rent in my opinion. If you are renting for 25 years, after 25 years, you will own nothing.

If you are mortgaging, after 25 years, you will own that house. Simple!Yes, there is additional cost of interest but the ultimate result of owning a house outweighs everything.

I feel even for Hong Kong which is world’s priciest housing market, mortgage is still the way to go. Here an average-600 square foot house starts at US$ 1.3 million.

 

[shaz619]

[MENTION=491]IMMY69[/MENTION] [MENTION=48620]Cpt. Rishwat[/MENTION] [MENTION=43583]KingKhanWC[/MENTION] what's your guys take on the current market in the UK, should first time buyers wait or look to secure something in the near future; it's hard to forecast where things will go with the virus concerns but not a lot is changing in the moment, interest rates have gone down in the interim but these wont affect mortgage payments given the fixed rate wont have changed.

 

[KingKhanWC]

[MENTION=491]IMMY69[/MENTION] [MENTION=48620]Cpt. Rishwat[/MENTION] [MENTION=43583]KingKhanWC[/MENTION] what's your guys take on the current market in the UK, should first time buyers wait or look to secure something in the near future; it's hard to forecast where things will go with the virus concerns but not a lot is changing in the moment, interest rates have gone down in the interim but these wont affect mortgage payments given the fixed rate wont have changed.

I was thinking of buying some properties but will wait as house prices may fall upto 25% if this virus gets out of hand. At present they are falling slightly but by the end of year it could be 10%. I think I will wait until June to see what the situation is.

 

[Nostalgic]

Rent is lost money. Once it leaves your bank account, it is gone forever, and you'll never recoup it. With a mortgage, even early on with the bulk of the payment going towards interest, you do gain some equity, and with real estate prices always going up in the long run, the house will eventually be worth more than what you bought it for.

The interest payments are of course a concern. The sound strategy is to make extra payments early on. That is what I have been doing, and in a couple of years I'll own the house outright. No matter what financial calamity hits me from that point onwards, I'll have a roof over my head, which I won't have to pay anyone for.

 

[srh]

One thing: Rent payment is never equal to Mortgage payment in the same area as there are utilities and property tax you have to pay while owning a house. From my personal experience I found that I was paying 1000$ per month more when I was owning house compared to when I was renting.

Having said that I still prefer to get my own house instead of rent.

 

[shaz619]

I was thinking of buying some properties but will wait as house prices may fall upto 25% if this virus gets out of hand. At present they are falling slightly but by the end of year it could be 10%. I think I will wait until June to see what the situation is.

Yes June is a sensible time to wait, the other issue some may have is if banks will be willing to lend long term, dependent on circumstance not sure how lenient they will be when it comes to the pay slips. But I imagine the market may not change overly and some may hold back on putting up the nicer houses on the market unless desperate for a sale. But from an investment POV, I wouldn't mind buying shares for specific companies who are likely to bounce back to their state before the virus

 

[jusarrived]

Interest rates and growth of real estate market are obvious factors you need to consider . The other important thing is , the extra money you are in hand paying only rent ..do you see yourself growing at a decent rate ? If it’s going to sit in your bank account , then I would be inclined to go for mortgage .

 

[jusarrived]

In India the rent returns are in the range of 3.5 to 4.5 % , so buying a property made a lot more sense even with higher interest rates which was more than made up by real estate boom . This may change in next few years , interest rates taking a nose dive but on the order hand market saturating .