Rent or Buy a Home?
Essentially, the calculator compares the cost of renting with that of buying. It takes into account the particulars of your loan (the amount, interest rate, closing costs, etc), what you pay in rent and how much cash you have on hand (available either to invest or to use as a down payment).
In order to receive an accurate estimate, you'll need to provide other figures, including insurance costs, association dues, and an estimate for average returns on the money you could be investing in the stock market (7% to 8% is a reasonable estimate for long-term returns).
Say you're buying a home for $250,000. Your lender offers you a 6.26% 30-year fixed-rate loan requiring $5,000 in closing costs. You have $55,000 on hand to cover the 20% down payment and closing costs. You've got a 1.6% expected tax rate on the property, $1,500 estimated cost for homeowners' insurance, rental payments of $1,200 a month and a 25% tax bracket.
Assuming 7% return on your investment, 3.1% inflation, 2% appreciation for your home and the standard 6% sales commission (when it comes time to sell your home), then you stand to break even on your home purchase in about nine years. You can see this value on the home equity vs. investment chart presented by the calculator.If you click on the "View Report" button below the calculator, you'll see the various pieces of this financial jigsaw puzzle. Your monthly home payment starts out at $1,691.07 ($1,232.74 for mortgage and interest, $333.33 for property taxes and $125 for home insurance). The mortgage and interest portion of your payment won't change, but the taxes and insurance costs will rise each year to match the rise in inflation and the appreciation of your home. With the opportunity to deduct your mortgage interest payments, you also stand to save on your taxes ($4,092 in the first year if you qualify to itemize your deductions).
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