Mortgage Payment

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What’s Right For You - A Monthly Rental Payment or a Monthly Mortgage Payment?

Just under 1/3 of Americans rent a property . For many this may be the only way they can get a roof over their heads. For others, this is just a temporary situation whilst they strive to save for a down payment and achieve the “American Dream” of owning their own home. First time buyers should realise the pros and cons of a rental payment vs. a mortgage payment and decide whether buying is right for them or not.

First time buyers have a very different profile to the rest of the nation who hold a mortgage. Their median incomes are $10,000 less. Over 50% of first time buyers are aged between 18-34 in comparison to just 25% of other mortgage holders. Also for 40% of this group of people, their mortgage loan to value ratio is over 90% in comparison to 24% for other mortgage holders . Therefore, for young people to make the decision to take out a mortgage and swap their monthly rental payment for a mortgage payment, it's a huge financial commitment. It's a decision that shouldn't be taken lightly and the advantages and disadvantages of taking out a mortgage should be weighed up before taking the first steps in finding a mortgage lender.

Advantages
  1. You can choose whether you want a fixed mortgage interest rate or an adjustable mortgage interest rate depending on how much of a risk you are prepared to take in the mortgage interest rate rising. However, as rent costs rise at a rate of 5.5% per annum on average, you should factor this into your decision too.
  2. Instead of throwing money into someone else's pockets you're lining your own as making mortgage payments will
    slowly building equity in your home.
  3. If houses properties continue to raise this will build up additional equity that you would never have made from renting a property.
  4. There are tax benefits that can be obtained if you purchase a property.
  5. The property is yours to decorate and renovate without the interference of a landlord

Disadvantages

  1. You are responsible for the property maintenance costs as well as the mortgage payment and you need to make sure you budget for this.
  2. Houses can lose equity as well as gain equity but if you buy in a confident market and chose a property that will appeal to a wide market you will reduce this risk.

If you default on your mortgage payment then you run the risk of repossession and becoming a bad credit risk.