A lot of people dream about buying their own home, sadly, most people cannot afford to pay the full amount for their dream home, so they get a mortgage or a home loan.
What factors determine whether you should continue living in a rented house or buy your own house?
Most of the time, we compare the loan repayment rate with the money we pay on rent in order to make a decision on whether to buy a house or rent a house. The amount we pay on house rent could pay our mortgage fees and in 20-25 years we will be able to pay our entire loan and have full ownership of the house. This is the basic calculation a lot of people make.
However, that’s not the right approach to make a decision on buying a house on a loan or renting a house because we are missing the value of opportunity cost. When you get a house loan, you will have to make a down payment of 20-30 percent. Instead of buying a house on a loan and making a huge down payment, what if you invested that money? You will earn a return on that investment. When you are renting, you don’t have to pay a huge upfront costs. This earning you make is called opportunity cost. Therefore, before you decide on buying a house consider this opportunity cost.
What factors determine whether you should continue living in a rented house or buy your own house?
Most of the time, we compare the loan repayment rate with the money we pay on rent in order to make a decision on whether to buy a house or rent a house. The amount we pay on house rent could pay our mortgage fees and in 20-25 years we will be able to pay our entire loan and have full ownership of the house. This is the basic calculation a lot of people make.
However, that’s not the right approach to make a decision on buying a house on a loan or renting a house because we are missing the value of opportunity cost. When you get a house loan, you will have to make a down payment of 20-30 percent. Instead of buying a house on a loan and making a huge down payment, what if you invested that money? You will earn a return on that investment. When you are renting, you don’t have to pay a huge upfront costs. This earning you make is called opportunity cost. Therefore, before you decide on buying a house consider this opportunity cost.
