Renting vs. Buying

Why NOW is a GREAT time to BUY because of the interest rate.

 

Current Cap-Fed Rate for 30 year fixed is 4.75%  (Historically Low!)

(Rate as of Friday, July 9^th 2010)

For example sake, let’s assume a $90,000 home purchase.

5% down payment  ($4,500 dollars.)

Loan amount: $85,500

Taxes at 1.25% of home value

PMI: 0.5% (mortgage insurance that protects the lender.  This is eliminated if 20% down payment or when equity reaches 20% of home value)

Homeowners insurance is NOT included in these calculations.

 

The following dramatically illustrates why NOW is a great time to buy as opposed to renting or waiting to purchase.  This is assuming a 30 year fixed rate loan at the assumed rate.  Again, current is 4.75% (as of Friday, July 9^th 2010)

If your mortgage rate is more than 2.5% above the current of 4.75%, you should consider refinancing at a lower rate.

These figures represent the life of a 30 year loan based upon the rate below.   

 

Rate:   Payment:  Total Paid:  Total Interest paid:  Total tax paid: PMI:       “Rent:”  

 

4.75%  $570.70     $205,450.55         $82,566.80           $33,750           $3,633.75  $229.30

5.5%    $610.15     $219,652.95         $96,484.20           $33,750           $3,918.75  $189.85

6.0%   $637.30     $229,429.15         $106,011.03         $33,750           $4,168.13  $162.20

6.5%   $665.11     $239,438.04         $115,806.16         $33,750           $4,381.88  $134.89

7.0%    $693.52     $249,662.61         $125,821.98         $33,750           $4,595.63  $106.48

 

“Rent” for positive cash flow is based upon being able to rent the property for $800.00 per month.  This is an assumption but is based upon reasonable rental rates for a home of this value.

If you purchased and decided to move up after 2 years, those figures represent what you could expect to get per month in positive cash flow if you were the landlord.