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I'm in my 20s and rent. I recently started thinking about whether I want to own. Before then, I didn't really understand the economics of mortgages. I did the math on the condo I live in and realized that, in terms of monthly expenses, I'm way better off renting. In fact, buying seems completely ludicrous.
Consider. The unit I rent is worth ~$400k and I pay $1500/mo. Let's say I bought it with 20% down. With current interest rates, that means in the first year I'd be paying $320,000 * 0.0425 / 12 = $1133 per month in interest alone. Add in HOA dues of $400/mo and you have $1533/mo. The mortgage payment would be an additional $1574/mo and the property taxes would be $341/mo and the home insurance would be about $140/mo. That means that the total cost per month if I owned the thing would be $3628 and that doesn't even include costs such as remodeling.
In other words, by renting, I am able to live in something condo that is 2.5x what I could afford to live in if I bought, and I have tens of thousands of dollars more to invest (which compounds and grows much faster than the appreciation on a house does) per year.
Maybe your landlord is giving you a killer deal or you are assuming the condo value incorrectly. It is only $400k if someone will pay that. I do know someone who charges renters of their two properties less than they could so it does happen.
Lowexpectations is right though, your math is way off. The interest is already part of your $1,574 number.
I'm in my 20s and rent. I recently started thinking about whether I want to own. Before then, I didn't really understand the economics of mortgages. I did the math on the condo I live in and realized that, in terms of monthly expenses, I'm way better off renting. In fact, buying seems completely ludicrous.
Consider. The unit I rent is worth ~$400k and I pay $1500/mo. Let's say I bought it with 20% down. With current interest rates, that means in the first year I'd be paying $320,000 * 0.0425 / 12 = $1133 per month in interest alone. Add in HOA dues of $400/mo and you have $1533/mo. The mortgage payment would be an additional $1574/mo and the property taxes would be $341/mo and the home insurance would be about $140/mo. That means that the total cost per month if I owned the thing would be $3628 and that doesn't even include costs such as remodeling.
In other words, by renting, I am able to live in something condo that is 2.5x what I could afford to live in if I bought, and I have tens of thousands of dollars more to invest (which compounds and grows much faster than the appreciation on a house does) per year.
There does seem to be a disconnect between the fmv of your place vs. the rent you're paying. Usually it's the other way around.
So what happens when your landlord does that math and says I'm better off kicking out the renter and selling the place? Now you have to find a new place to live and hope the economics are still in your favor. Not exactly a risk I'd like to live with if I can avoid it.
Maybe your landlord is giving you a killer deal or you are assuming the condo value incorrectly. It is only $400k if someone will pay that. I do know someone who charges renters of their two properties less than they could so it does happen.
Lowexpectations is right though, your math is way off. The interest is already part of your $1,574 number.
That is too high, any mortgage we had, the principal was only a very minor part of the payment, that is why it takes 30 years to pay off. Run a mortgage calculator on one of those real estate sales sites to get a better idea of what the monthly repayment would be.
Konald should probably stay away from buying a house if the math on figuring it out is too complicated. Worse yet, there are endless online calculators that do the numbers for you, and he's still unable to figure it out. Stick to renting.
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