Your first home!
Thursday, October 19th, 2006
Home. That’s the first and most important decision for any family. It’s about where you live for years, bring up children, make friends and feel at ease. And by the way, make huge payments; much more than any other.
If you’re renting a place to live in, chances are that you’re spending around 20% to 30% of your take home income on the rental. That’s the normal range in general, although you might have huge differences especially if there are special circumstances (short term stay, or a particularly expensive city). If you’re to continue renting, over your working career of 40 years or more, just add up what you’re paying out - you’ll find it probably exceeds the value of the house.
Why does this happen? Because the owner who rents out a home has put in his money, as an investment; and any investor looks for ways to recover his money and more. So while there could be blips in the rent to value ratio, over time it tends to come back to equilibrium.
Rarely does anyone buy a house with cash - it’s usually funded with a down payment and a mortgage. So the investor looks for a rental return that can cover the mortgage payments (interest and principal), any other expenses like insurance and taxes, and hopefully a small surplus to cover ongoing maintenance.
So if you’re paying to cover the mortgage - why isn’t the mortgage yours?
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