Rent vs. Buy
Should you rent or should you buy your home? It takes more than looking at your
mortgage payment to answer this question. This calculator helps you weed through
the fees, taxes, and monthly payments to help you make a good financial
decision. Click the "View Report" button for a detailed look at the results.
Definitions
- Price of home
-
Purchase price of the home you wish to buy.
- Cash on hand
-
Cash you have for the down payment and closing costs.
- Interest rate
-
The current interest rate you can receive on your
mortgage.
- Term in years
-
The number of years over which you will repay this
loan.
- Property tax rate
-
Your property tax rate. 1% for a $100,000 home
equals $1,000 per year in property taxes.
- Home insurance rate
-
Your homeowner's insurance rate. 0.5% for a
$100,000 home equals $500 per year for homeowner's insurance.
- Loan origination rate
-
The percentage the lending institution
charges for its origination fee. 1% for a $100,000 home equals $1,000.
- Points paid
-
The total number of points paid to reduce the interest
rate of your mortgage. Each point costs 1% of your mortgage balance.
- Other closing costs
-
Estimate of all other closing costs for this
loan. This should include filing fees, appraiser fees and any other
miscellaneous fees paid.
- Total closing costs
-
Total upfront costs to close your loan. This
is the sum of the loan origination fee, amount paid for points and other closing
costs.
- Total for down payment
-
Total funds remaining for down payment.
- Mortgage amount
-
Total amount of loan.
- Investment return
-
The rate of return you could receive if you
invested your closing costs and down payment instead of purchasing a home.
The
actual rate of return is largely dependant on the type of investments you
select. For example, from January 1970 to February 2003 the average compounded
rate of return for the S&P 500, including reinvestment of dividends, was
approximately 11%. Savings accounts at a bank pay as little as 2% or less.
It is important to remember that future rates of return can't be predicted with
certainty and that investments that pay higher rates of return are subject to
higher risk and volitility. The actual rate of return on investments can
vary widely over time, especially for long-term investments. This includes
the potential loss of principal on your investment.
- Monthly rent payment
-
Amount you currently pay for rent per month.
- Income tax rate
-
Your current marginal income tax rate.
- Expected inflation rate
-
Inflation rate used to adjust amounts
subject to annual increases. These amounts include rent, insurance and tax
payments.
- Home appreciates at
-
Annual appreciation you expect in the home you
are purchasing.
- Future sales commission
-
The percent of your homes selling price
you expect to pay to a broker or real estate agent when you sell your home.
- House payment
-
Total of principal, interest, taxes and insurance
(PITI) paid per month for your home. Insurance includes Principal Mortgage
Insurance (PMI) and homeowner's insurance.
- Principal payment
-
Total of principal paid per month on your
mortgage.
- Tax savings
-
The value of the tax deduction you receive on your
mortgage's interest and home's property taxes. For example, if you have $900 in
interest and $100 property taxes per month, the value of the tax deduction would
be $280. (At a tax rate of 28%).
- Net house payment
-
Your house payment minus the value of the tax
deduction and principal payment.
- Net home price
-
Net selling price of your home after subtracting
any sales commissions.
- Monthly PI
-
Monthly principal and interest payment.
- Monthly PMI
-
Monthly cost of Private Mortgage Insurance (PMI). For
loans secured with less than 20% down, PMI is estimated at 0.5% of your loan
balance each year.
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