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Ben Halpern
Ben Halpern

Posted on

Mortgage vs rent: pros and cons

I got into a Twitter discussion about adulting in general where I said that mortgages are a relief vs rent.

I got this reply:

Can you dive into why mortgages are a better feeling than rent? I always get told the mortgages are a pain and that you shouldn't bother with them if you can't afford it and stay with paying rent.

I thought this deserved a longer reply, so here I am.

I'm no expert in any of this, but I am someone who crossed the chasm and would love to help offer my two cents.

Flexibility vs stability

One great reason not to get a mortgage is that renting is flexible, and I don't know what I would have done in my 20s without that flexibility. You really have to know what you want for a mortgage to be worth it. My happiness and earnings potential definitely benefitted from the flexibility of renting.

Home ownership, however, offers a different type of flexibility which is also appealing— Today more than ever. Able to work remotely and want to spend your February in a warmer climate? You might be able to rent out your house or AirBnB and you don't have to work it out with your landlords. Besides local laws, you get to make all your own decisions.

Your house, your problems

Having a good landlord who can fix stuff when it breaks is amazing. Home ownership means the risk and burden falls on you. I personally enjoy the autonomy this affords my wife and I, even if it is more work.

Property taxes, etc.

There are a lot of payments related to home ownership that are not related to paying into your own home equity. With renting this is all priced in. This is probably the biggest reason no option is dramatically better than the other, financially.

How my wife and I bought a house and why we're happy with the choice

Being able to include "my wife and I" is a big factor here. The stability of a longterm relationship is a good forcing function for mortgages being a good idea. It's hard to say I'd be able to make similar choices without that. Having two incomes also really helps the economics of any living situation.

That being said: With really low interest rates right now, we bought a house on a 10 year mortgage where our monthly payment is less than we used to pay in rent... We bought a house well within our means and are planning to pay it off sooner than 10 years.

We are in the position where we have disposable income we can put towards a mortgage in this way which not all have, however, since we used to pay even more in rent, we basically did the math and switched from paying rent to buying equity into our home. By going with a 10-year loan, we drastically reduce the amount of interest we pay. We're primarily just buying the house gradually. Financially this was all a no-brainer.

We also invested in an electric vehicle and plan to install solar panels. You just can't do this when you rent. Some of these choices are more about environmentalism vs cost savings, but the savings are high. After incentives, our solar installation break-even point is six years... Meaning mostly free power, heat, and even auto-mileage after that.

Bottom line

If you are renting, you are paying someone else's profit margin. Maybe that is a good thing because, in return, you get some kind of benefit. However, if you can position yourself to not need that benefit, you'll always win financially.

Most advice on any topic is given from a position of what has caused me the most pain and regret, and how can I help someone else not feel that pain. Stretching your budget and taking out a 30 year mortgage seems incredibly painful. Acquiring some debt in order to save money in the long run (aka a mortgage) is a good thing, but stretching your budget in any way when taking on a mortgage is a really bad thing. I'm happiest with the choice we made because we bought something we are very happy with at a price well below what many folks justify spending.

Discussion (2)

ildi profile image

Very useful information Ben, thanks for sharing! The advice I constantly hear from family and friends is that having two incomes makes a big difference. I'm glad you also emphasized that fact here as I think it's something that isn't talked about enough. Ten years sounds like a really good plan.

A bit off topic but... I'm curious if in the future people will have other options apart from mortgage and rent. It seems so strange to me that life has been structured in a way where home ownership for majority is achieved through loans.

ben profile image
Ben Halpern Author

I got a reply on Twitter pointing out this dashboard which could help you further: