How an $800 mortgage payment is NOT the same as an $800 rent payment

For more information on buying a house the right way, please check out my new book “A Tale of Two Houses-Our journey of buying a home the right way; after buying one the wrong way.”

One of the most common sayings you hear when someone is considering buying a house for the first time is, “My rent is $800 and I can buy a bigger place for the same $800 a month, why shouldn’t I buy?” It’s one of the lines that realtors, bankers, and others use when trying to convince you to purchase a home. The reason they give is that $800 rent a month is just throwing your money away whereas with a mortgage, you are building up equity. However, when comparing your rent payment vs. your mortgage payment, $800 rent payment is not the same as an $800 mortgage payment.

There are a lot of reasons why, but let’s focus on the three main ones.

Taxes and insurance

When calculating our mortgage payment, most of the time we look at just the principal and interest and we fail to consider the taxes and insurance that you will pay. Granted, the principal and interest make up a large chunk of your payment, but taxes and insurance add a few hundred or more a month to your payment depending on where you live. That can mean a large chunk of your income is going to pay for your home each month, leaving little money to save, invest, spend, and pay down debt with.

Repairs

One of the nice things about renting is that you don’t have to pay for things when they break. With renting, when things like the heater, A/C, and the water heater break, you call your landlord and they are the ones who are responsible to fix it. However, when you own your home, it’s your responsibility to take care of that stuff when it breaks. No matter how old or new of a home you have, things break unexpectedly all the time. So when you own a home you’ll have to be saving consistently to have the cash to pay for those breakdowns.

Time

This is often an overlooked thing when buying a home. But with owning a home you are responsible for lawn care, snow removal, painting, and basic upkeep and all those take time. Yes, it’s nice to design your house how you want it to look. But first realize that it might not take as much money as it takes time to keep your home in order.

So when you add all of those things up, you realize that comparing the price of your rent to the price of a mortgage payment is not a good comparison. I’m not trying to scare you away from buying; I think buying a home is a great thing if you are in the financial position to do so. But you’ll need to do more research than just comparing the monthly payments as there are lots of other things to consider as well.

For more information on this subject, please check out this podcast I did on renting vs. buying. If you are considering buying a home and would like some advice, I’d love to sit down with you and discuss your options.

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2 Responses to How an $800 mortgage payment is NOT the same as an $800 rent payment

  1. Josh says:

    Good reminder.
    I consider renting as “paying for patience”. We have a lot of flexibility right now. When we do buy a house, I hope to pay cash. Paying cash will significantly decrease the total amount we actually pay for a home. Great article!

    • Jon White says:

      Thanks for stopping by Josh. I never thought of it that way before, but I like how you refer to renting as “paying for patience.” That’s a great way to look at it.

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