Equity is Forced Savings

Equity is Forced Savings

Smart shoppers hold off their buying decisions till a sale where they can get up to 50% off on the goods they buy. Similarly smart renters who want to reduce their housing costs should buy homes today due to the low mortgage rates.

The following example will better illustrate the point. Let us consider a tenant who pays $1,750 p.m.as rent. If he were to buy a $200,000 house with $7000 (3.5%) down payment on a 4.5% FHA mortgage for thirty years, then the monthly payment will be about $1,508 p.m. However, a 2% yearly appreciation, money saved on taxes and maintenance that a renter would have had to pay brings the net monthly cost of owning a home to almost half at around $722 per month.

Compared to a tenant, a house owner saves almost $978 per month which translates to savings of over $11,000 in the first year only which is more than the money required for down payment.

House is the largest investment of most people and a down payment of $7,000 for a home is a bargain when one factors in that it will mean an equity growth to $58,837 (estimating normal amortization and 2% appreciation).

To find out more about housing costs visit Rent vs own.

If you are interested in Real Estate in the Texas Hill Country, please feel free to contact Tom Ashworth at (208)830-7991

 

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