How Is Paying A Mortgage Different Than Paying Rent

How Is Paying A Mortgage Different Than Paying Rent

If you’re a renter out there watching this, you may be wondering “How Is Paying A Mortgage Different Than Paying Rent ?”  This video is for you, or if you know someone that’s a renter, forward this video on or turn them onto this video, because looking at how a mortgage is different than paying rent is very important.

It’s common that your mortgage payment will be the same or sometimes even lower than what you would pay for rent. And the thing is with a mortgage payment, is that a portion of that mortgage payment is principal. What that means is that part of your mortgage payment goes towards paying down the balance on the mortgage. It’s kind of like a forced savings account.

Let’s just take an example. Let’s say you take out a mortgage for $300,000. You make that first payment. After that first payment is made, your new mortgage balance may be something like $299,500. So, you owe a little bit less on that mortgage each month as you make those payments. Now, you don’t get that money. You can’t withdraw that money like a bank account, but when you go to sell the home at a future date, if you owe less on the mortgage, you’re going to get a larger check when you sell the house, because you’re going to have more value in that house which we call equity. That’s the difference between what you owe and what your home is worth.

This is one of the big advantages of home ownership. Not only are you paying down your mortgage balance every month with part of your payment, but your house is going up in value every month, most likely. There have been some brief times in the past when home values have gone down, but usually that’s short-lived, and home values turn around and go up. But as you pay that balance down, you’re going to get more and more equity. And that’s a great way to build wealth and to potentially get into a better financial position down the road.

With rent, you’re paying the landlord your rent payment, and they’re using your rent payment to pay down their mortgage balance. So, it’s not helping you at all. It’s only helping your landlord. That’s the first thing to know. The second thing that’s a lot different when you buy a home versus renting is when you go into a new rental lease, you have to pay the landlord a lot of money up front. You probably have to pay maybe first and last month’s rent and rent deposit. This could be up to three months of rent payments that you pay up front. And not only that, but then you’re starting your rent payments that very first month after that first 30 days. So, this can be a lot of money up front.

Now, with buying a house, yes, you do most of the time have to come to closing with some money out of your pocket, and that can be minimized through programs like CHFA or other down payment assistance programs, but you come to closing with some money and then you actually don’t have a payment the first month, believe it or not. The first month after you close on the house, you don’t have a payment, so it enables you to replenish your funds, take a little break from paying a housing payment, and your first payment’s due that next month on the first of the month.

Let’s use an example. Let’s say you close this week on a house. It’s November, as I’m recording this. You would not have a payment on December 1st. Your first payment on the mortgage would be January 1st. This is a really important thing to keep in mind when you’re buying a house that you have that payment relief for that first month. Those are just a couple of things about buying a home versus renting, as my dog puts in his opinion there in the background.

So, just give me a call if you have any questions on that or anything else. I’m always here for you to answer your questions, just call text or email at 303-670-0137 or baxterteam@fairwaymc.com. And if you know of anyone else that could benefit from buying a house, please don’t keep us a secret. Let them know about us. We always appreciate your referrals. That’s how our business has grown over the years. And thanks again, have a great day.

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