| > | | | | Savings (at 28%): $32,549The Average Monthly |
| The rent-versus-buy calculators you see online are | | | | Payment Over Time: Rent: $834 - Buy: $550Total |
| supposed to help you decide which is better for you, | | | | Payments Over Ten Years: Rent: $100,080 - Buy: |
| but they have some problems. | | | | $66,017Your Total Savings On: Buying - $34,063 |
| You probably have seen a rent-versus-buy calculator | | | | Confusing. My amortization table shows that the |
| here and there online, and you may have even used | | | | payment on a 30-year, 7.5% loan would be $944 per |
| one. They are supposed to help you decide if buying a | | | | month, not $550 - and this doesn't include mortgage |
| house makes financial sense for you, but do they really | | | | insurance, property taxes or home owner's insurance. |
| tell you what you need to know? Let's take a look at | | | | They may take into account the tax savings, but that |
| how they work, and how they sometimes don't. | | | | still doesn't explain how they arrive at $550. There is |
| To Rent Versus Buy | | | | this little note at the bottom: |
| The idea of these calculators is to take into account all | | | | "The above rent-versus-buy calculator uses the |
| the costs of both renting and buying over a given time, | | | | following in its calculations: homeowner's insurance, loan |
| to compare them and see which option is better. | | | | costs, mortgage insurance, cost to sell the home, |
| There are a number of criteria involved, though, and | | | | property tax, homeowner's tax savings, and increases |
| this means there will always be some guessing. How | | | | in rent. Results are estimates. " |
| many years will you be in the home? How much will | | | | Well, that certainly doesn't clear things up, but it does |
| rent be up to in ten years? How high will your property | | | | point out some other issues, like the fact that there is |
| taxes be? These fields will be filled in by default in | | | | no calculation at all for repair costs. Having owned |
| most calculators, and you'll change them as needed. | | | | several homes, I can tell you that there will be repairs |
| I just went to the U.S. Government's site, ginniemae.gov | | | | and maintenance. We also don't know if rising property |
| to see their rent-versus-buy calculator. Their fields start | | | | taxes were taken into account. Also if you are in the |
| (mid 2007) with an assumption of ten years in a house, | | | | 15% tax bracket (likely if you're renting a $750 |
| a 7.5% interest rate, and 2% annual appreciation - all | | | | apartment), the tax savings would be about $15,000 |
| very conservative guesses. Here is what all of the | | | | less than calculated - a little bit of difference. |
| criteria were preset at: | | | | Now, even at a more reasonable 6.5% interest rate, |
| Your Current Monthly Rent: $750The Price of Home: | | | | the monthly cost of owning a $150,000 home (with |
| $150,000The Down Payment: $15,000 (10%)Term Of | | | | taxes, insurance, and minor repairs) is a minimum $1,150 |
| Loan (years): 30Interest Rate On Loan: 7.5%Estimated | | | | - and probably higher than that. Using the above |
| Years In The Home: 10Annual Property Tax Rate: | | | | example, this is $400 more per month than renting. My |
| 1%Annual Home Value Increase: 2% | | | | guess is they take into account the "opportunity cost" |
| You can change any of these. For example, property | | | | of not having that $400 per month to invest over 10 |
| taxes are closer to 2% of property value in some | | | | years. That might even surpass the equity gain from |
| areas. Over 10 years appreciation will probably be | | | | owning. |
| more than 2% annually (although it could well be a | | | | Buying is often a good idea, especially since you |
| negative number this year and next). Hitting the | | | | probably won't invest that $400 monthly in extra cash |
| "calculate" button, this is what was shown: | | | | flow you get from renting. But do some of your own |
| Home Value In Ten Years: $182,849Loan Balance | | | | thinking, understand what criteria are being used, and |
| After 10 Years: $117,340Your Equity: $65,509 Tax | | | | be skeptical of these rent-versus-buy calculators. |