Renting costs the rent, a deposit and renter insurance. Repairs are the landlord problem, and moving is easy.
Step 1: Let's Learn
Read it, or press Listen and follow the words.
Buying
Buying needs a down payment and closing costs, then a mortgage payment plus property tax, insurance and maintenance.
The costs people forget
Property tax, home insurance and maintenance often add 30% or more on top of the mortgage payment itself.
Equity
Each mortgage payment builds a little ownership. That is the genuine advantage of buying, and it accumulates slowly at first.
The break-even
Buying costs a large amount up front, so it usually takes several years to beat renting. Below that, renting wins.
How much is affordable
A common guideline keeps total housing costs under about 30% of net income.
Renting and buying are different bundles
Renting buys occupancy and flexibility. Buying adds maintenance, tax, insurance and interest, alongside the possibility of building equity. Comparing rent against a mortgage payment alone omits most of the difference.
A mortgage is a long amortised loan
Over a long term, early payments are almost entirely interest. Total interest over the life of a thirty-year loan can approach or exceed the amount borrowed, depending on the rate.
The costs at purchase
Deposit, legal fees, survey, taxes and moving costs all arrive at once. Budgeting only for the deposit is the standard first-purchase error, and the remainder is not a small addition.
Ongoing costs continue
Maintenance, property tax and insurance do not stop, and unlike rent they are the owner's responsibility to forecast. A common planning rule sets aside a percentage of the property value annually for upkeep.
Step 2: Try It Yourself
Tap and try it out.
Mortgage
Property tax
Insurance
Maintenance
Mortgage has the most. It has 1100 more than Insurance.
Step 3: Watch an Example
One step at a time.
Watch Kofi Compare Two Options
Rent is $1500 a month. Buying means a $1200 mortgage plus $300 tax, $100 insurance and $200 maintenance.
- Step 1
The buying total is 1200 + 300 + 100 + 200 = $1800 a month.
Step 4: Your Turn
Practice makes it stick.
The Total
Problem 1 of 2
Mortgage $1200, tax $300, insurance $100, maintenance $200. Monthly total in dollars?
dollars
The Down Payment
Problem 2 of 2
A 20% down payment on a $250000 home. How much, in dollars?
dollars
Rent or Buy
1 of 8
A 10% down payment on $200000. Amount in dollars?
2 of 8
A 20% down payment on $300000. Amount in dollars?
3 of 8
Mortgage $1000, tax $250, insurance $80, maintenance $170. Total in dollars?
4 of 8
Net income $5000 a month. What is 30% of it, in dollars?
5 of 8
Rent $1400 a month. Annual rent in dollars?
6 of 8
Which builds equity? 1 renting, 2 buying.
7 of 8
Sort each cost by which arrangement it belongs to.
Tap something to move it.
- Empty
- Empty
8 of 8
A 5% down payment on $180000. Amount in dollars?
Step 5: Quick Check
Show what you know.
Question 1 of 2
A 20% down payment on $200000. Amount in dollars?
Question 2 of 2
What do people most often forget when costing a home purchase?
What You Learned
- Renting costs rent, a deposit and insurance; buying adds tax, insurance and maintenance.
- Only buying builds equity, and it builds slowly at first.
- Keep total housing costs under about 30% of net income.