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Rent or Buy a Home?

Your rental payment starts out at $1,200 ($491.07 less per month than your home payment), but rent goes up with inflation. By the end of 30 years, it could be upwards of $2,908.59 a month -- almost $862 higher than your final monthly home payment.

And that's not all. After 30 years, assuming the 2% rate of appreciation, you will have accumulated $425,670 in home equity. This is significantly more than the $210,167 you would have in your portfolio if you invested the $55,000 down payment and closing costs at an average return of 7%.

Over the long run, it's clear that owning in this scenario is better than buying. But if you plan to move before the nine years is over, buying may not be the right decision. Furthermore, since home prices are declining rather than rising in many parts of the country, the 2% appreciation estimate may be high, in which case it would take even longer than nine years to break even.

If you're worried about housing declines, go back and alter some of your assumptions -- including the estimated average return on investment -- in order to be sure you are comfortable with the range of break-even points that your situation may offer.

Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.
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