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6.3 Home Mortgages

6.3 Home Mortgages
  • Math Help

    Does Example 5 mean that it costs more to buy than to rent? In some cases, it does. Of course, there are many situations when buying is less expensive than renting. The point is that either buying or renting is expensive, and the advantages of one over the other demand careful consideration. In general, the longer a person plans to live in a home, the more advantageous buying becomes.

    You can compare the costs of buying and renting using this calculator.

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  • Checkpoint Solution

    Sample answer:

    1. An important thing to consider when choosing to buy or rent is your own lifestyle and personal preferences. Some benefits of renting are not worrying about property values rising or falling and the convenience of not having to fix it yourself when the roof leaks or the plumbing malfunctions. Benefits of buying include being able to make whatever modifications you want, have pets, make more noise, and not having to worry about getting kicked out when your lease ends.

      You should also consider that you may not be able to find similar homes available to rent and buy in the same area. If you do, even small distances apart can have a big effect on the amount you spend on transportation during your years there.

    2. I think that the home mortgage interest tax deduction unfairly favors those wealthy enough to afford buying homes. People with high incomes are likely to buy homes and those with low incomes are more likely to rent. Even middle class people with mortgages are likely to take the standard tax deduction and not even benefit from the mortgage interest deduction. Although the income tax system of the U.S. is supposed to be progressive, this tax deduction disproportionally helps the wealthy. The typical defense is that the tax deduction gives incentive for home ownership, and high rates of home ownership are good in general. But there is little evidence that shows it actually gives this incentive.

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    Ron Larson (author)1 decade ago |
    I like this example. My wife and I didn't buy a home until we were 40. Up until then, we rented. It was always surprising to me how our friends who were home owners often seemed intent on trying to convince us to buy. Of course, owning a home is nice. But, Example 5 points out that it can easily be more expensive than renting.