Kash Avena
Having moved zip codes a few months ago, I’ve been on a hunt for a good starter home. Although I’ve come to a decision on the type of house and the general location, one question bugged me for the longest time: should I rent or get a mortgage? It wasn’t until I sat down to write the pros and cons and do the math with a loan calculator that I came to a conclusion. And the answer surprised me.
Culture has embedded in us the idea of owning a house as a right of passage signalling independence and the ability to make a life of your own. However, is owning a home really the best option? The decision was made simple when I finally took time to list the pros and cons and see my mortgage options with a loan calculator.
In the Philippines, a survey conducted showed two thirds of residents would rather rent than buy a home in 2014. However, there seems to be an increasing trend towards home ownership, as 43% of Filipinos looked for property for sale in the real estate online portal Lamudi, according to a study they published in 2015.
So how did I finally come to an answer of whether or not I should rent or apply for a mortgage? First I made a list of pros and cons for renting vs. getting a mortgage:
Pros and Cons of Renting a Home
Pro: You can rent a property even without a stellar credit history, as long as you can pay the rent and security deposits. When you apply for a mortgage, banks and lending companies will have to determine if you are credit-worthy based on your past transactions.
Pro: You are not responsible for repairs or upkeep, which falls under the property owner. Bust a pipe? Call the landlord or building manager to get it fixed. You don’t have to deal with the costs and hassles of home maintenance.
Pro: Relocating won’t be a problem as you don’t have a house you’ll have to resell or maintain from far away.
Con: You have less freedom and privacy. Of course you want to bring Chewie. She is, after all, more a family member than a pet. Hold up – you have to get clearance from the property owner before your dog can move in. The landlord can also schedule routine inspections of the property per your contract to make sure you’ve not repainted a wall or remodeled the kitchen.
Con: You are not building wealth with your monthly rent. This is the biggest argument against renting. For many people, renting a home means throwing your money away with nothing to show for years later.
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Pros and Cons of Buying a Home
Pro: You are building equity and making a financial investment. The monthly payment you make is going towards a piece of property that you can resell or pass on to your children in the future.
Pro: You may be saving money in the long run. You’ll pay the same monthly rent 10 years down the line. Compare that to rent increase or inflation, which can mean your P10,000 rent will rise to more than P15,000 during the same period at a 5% increase per year.
Pro: You are the king or queen of your castle. House enough pets to open a mini zoo. Remodel the house anytime you want. Most of all, you can take pride in knowing that you have achieved the ultimate measure of independence.
Con: You have a mortgage to pay in the next 10 to 30 years, which means that you have to be able to make that payment no matter the changes in your career or finances.
Con: Be prepared for the possibility of your property value dropping for any number of reasons – a shift in the market, or your area just not being as ‘hot’ as it was when you purchased your home. It is not guaranteed that your home will appreciate or even remain in value.
What I Discovered After Using a Loan Calculator
After making a pros and cons list, I after using an online loan calculator to figure out if I should rent or buy I home. Here’s a similar sample calculation the loan calculator came up with, localized for my fellow Pinoy readers:
Loan amount: P1,000,000 (if the property value is P1.2 million,
and I can put a down payment of P200,000)
Payment terms: 5 years (60 months)
Monthly payment (at 1.2% projected interest): P28,667
Although it’s a bit of a stretch, the computation I got is still within the prescribed loan-to-income ratio. Fiddling with the options, my payment went down drastically when I adjusted the payment terms to 25 years. I was thinking of making the jump and calling a real estate estate. Before I did though, I made a cost comparison of paying a mortgage vs.renting and this is what I found out:
Check Your Monthly Home Payment with a Loan Calculator
You can only fully benefit from owning a home if you intend to live in it in the next 20 or so years, or until you’ve fully paid off your mortgage.
This is because transferring homes can costly, with the possible scenario of you paying your old mortgage and property tax on top of your rent or mortgage for your new home. The costs of owning a home can make it a winning proposition if you compare it to rent inflation for a good number of years, as mentioned earlier in the article.
The Answer: Rent or Buy a Home?
It’s really simple yet true: it depends on your priorities, and the stage of life you’re in now. If you 1. have fully settled down; 2. have the intention of staying in your current zip code and building a life there; 3. can afford the down payment and mortgage, then by all means apply for a home loan.
However, if you’re still starting out or wanting to explore different cities, or if you’re still establishing your credit, your best bet is to find a property for rent until you’re fully ready.
