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  • Writer's pictureNancy Moeller

Buy or Rent? Either way, you're still paying a mortgage.

Some people have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. The point for these folks to consider is that unless you are living with your parents rent free, you are paying a mortgage - either your mortgage or your landlord’s mortgage.

As a paper from the Joint Center for Housing Studies at Harvard University explained:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.

When you purchase a home with a 30-year fixed rate mortgage, your ‘housing expenses’, excluding maintenance and property taxes, are locked in for the next thirty years. When you rent, your rent will increase over that same thirty year time period. The apartment I rented in college for $750 a month 30 years ago, now rents for $2,400.

Your mortgage payment also creates a ‘forced savings’ in both principal pay down and appreciation which will build equity in your house. Equity can be used to buy a larger place later, pay for your children's education, or retire sooner. As a renter, you guarantee the landlord is the person with that equity.

Whether you are looking for a primary residence for the first time or are considering a vacation home in the mountains, owning almost always makes more sense than renting. 

Note: This is an updated article I originally wrote in 2014. Since then, median home prices have increased 35% in Orange County. A $500,000 house purchased in 2014 is worth approximately $675,000 today. I hope you have at least one more house in your portfolio the next time I revisit this article.

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