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Rent or mortgage: pros and cons

This post provides a detailed analysis of the pros and cons of renting or mortgaging a home. Advantages of renting include gaining flexibility of location, avoiding the stress of maintenance, and generally being cheaper in the short term. Mortgaging however, offers potential tax relief, the opportunity to build up equity, and increased sense of stability, but comes with higher upfront costs. Ultimately, the decision of whether to rent or buy depends on the individual’s personal and financial situation.

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According to statistics published by the national bureau of Russia, there is an average of 22.6 square meters of housing per inhabitant of our country. As you can see, statistics is a very interesting science, because, it would seem, such data indicate that every Russian is provided with a normal living space. Nothing like this! According to all the same statistics, about 10% of Russian families are in line to get an apartment or participate in the state program “Affordable Housing”, and 60% need to improve their living conditions.

However, the Russians do not at all need the publication of statistical data in order to unanimously declare that the housing issue in our country is one of the most painful and acute. Own apartment remains a dream for many young families who are forced to either apply to banks for a mortgage or rent an apartment.

Official data indicate that only about 3% of families rent housing from individuals. Of course, in fact, this percentage is much higher, since the parties to the transaction do not always formalize the lease agreement. At the same time, as noted by the leading banks of Russia, in 2011 the number of contracts for the purchase of housing on the terms of a mortgage loan doubled. Statistics show that about 19.8% of families in need of new housing in the past year purchased apartments or private houses on a mortgage. And the number of families solving their housing problems by obtaining a mortgage loan is growing every year – in 2015, according to experts, their number will increase to 30%.

We can confidently say that housing rent and mortgages remain the main options for solving the “housing issue”, this is a rather difficult choice that requires accurate calculations and a thorough approach. Let’s try to figure out in which cases it is more profitable to take a mortgage loan and rent a house.

Renting: advantages, benefits and risks

So, renting a home is a real estate transaction in which two parties are involved – the owner of the apartment and the tenant. The landlord, who for some reason is not currently living in his apartment, decides to earn or at least compensate for the costs of paying for utilities and provides his housing to the tenant on certain conditions, the main of which are timely payment and respect for the property received for rent.

Of course, the cost of renting a one-room apartment in different cities of Russia is very different. So, if in Moscow for a rented “odnushka” tenants will have to pay an average of 31 thousand rubles (according to RosRielt real estate for April 2012), in Sochi – 25 thousand rubles, in St. Petersburg – 17 thousand, Saratov – 11 thousand , Omsk – 10 thousand and in Cheboksary only 7 thousand rubles.

Rent or mortgage: pros and cons

Russian experience shows that it is most profitable to rent an apartment without furniture and household appliances (of course, in this case, problems arise when moving, but the cost of an “empty” apartment is much lower). The tenants usually find the most favorable offers not through real estate agencies (which also require payment for their services), but through friends, and the landlords themselves prefer to entrust their property to friends or on the recommendation of someone close.

The best rental options are cases when the buyer of an apartment in a new building provides it for a long time. Such cases are far from uncommon, perhaps the new owner simply decided in this way to profitably invest the available funds that appeared and immediately planned to rent the apartment, or his family circumstances changed. It is not so important what caused this – an unexpected inheritance, a failed wedding or a move to another city, but a vacant apartment should not be empty, the owner decides and starts looking for tenants. It is not uncommon to find such apartments in small towns, even at a “ridiculous” rent, slightly exceeding utility bills. This type of lease is ultimately beneficial for both the tenants themselves and the tenant, who is sure that his home is in good hands..

And yet, even if tenants rent an apartment from friends who do not restrict their freedom of action, they raise their fees only in the event of an increase in utility fees, and the lease term is very distant – “until the children grow up and they do not need housing,” the rented apartment remains a stranger and carrying out, for example, major repairs must be coordinated with the owner.

Much more problems arise if the parties to the transaction – the landlord and tenant were not previously familiar, and the home owner tries to control every step of the temporary tenant, prohibits, for example, having pets, and so on. In addition, if a formal lease has not been entered into, in which the exact amount of rent is indicated, then tenants at any time can expect a very unpleasant surprise – an increase in monthly payments. And the owners can also “ask” from a rented apartment at any time (although it is officially accepted to give the tenant at least a month to look for a new home).

Mortgage: advantages, benefits and risks

According to experts, the mortgage lending market in our country is very young and does not yet have even twenty years, so it is still developing and improving. The results, as they say, are already “evident” – the number of transactions for the purchase of apartments on the terms of a mortgage loan has grown tenfold over the years, and rates on bank loans are steadily (albeit rather slowly) decreasing.

Today the average mortgage rate in Russia is 11.8-12.2%. The cost per square meter across the country differs greatly depending on the city and is quite consonant with the situation in the rental housing market. So, in Moscow for 1 square meter of residential real estate, on average, you will have to pay about 160 thousand rubles, in Sochi – 100 thousand, in St. Petersburg – 85 thousand, in the Moscow region – 70 thousand, in Ufa – 53 thousand, and in Saratov – only 32 thousand rubles.

To compare mortgage payments with payments for renting an apartment, you can use an online calculator (now there are similar ones on almost every website of a large bank) or make simple calculations yourself.

Rent or mortgage: pros and cons

For example, let’s take a small, one-room apartment in Moscow with an area of ​​40 square meters – 160 thousand rubles * 40 = 6.4 million rubles. Let’s take the current average bank rate – 12% per annum, imagine that we take a loan on favorable terms – for a period of 20 years, and even without an initial payment, and receive a monthly payment of 70,469 rubles (equal payments) In the case of differential payments, the amount of monthly payments “starts” from 90 666 rubles and by the end of the 20th year of mortgage lending is reduced to 26 933 rubles per month.

Taking into account the average rent in Moscow (remember – 31 thousand rubles), renting a “odnushka” in the capital is now definitely much more profitable than buying on credit.

In Saratov, the most inexpensive of the Russian cities proposed for example, the picture will, of course, be somewhat different. For the same one-room apartment with an area of ​​40 “squares” you will have to pay only 40 * 32 thousand rubles = 1.28 million rubles. Let’s take the same, rather sparing conditions of a mortgage loan – a period of 20 years, there is no down payment, and the bank’s rate is 12%, and we get a monthly payment of 14,093 rubles. However, the rent in Saratov, as we remember, is only 11 thousand rubles, so here the mortgage has not become a more economically advantageous solution..

That is, in order to compete with rental housing on an equal footing, mortgages must be provided for at least 30 years, and bank interest rates on loan funds must not exceed 5% per annum (which, by the way, was promised not so long ago by Vladimir Putin). Only then will the monthly mortgage payments for a “odnushka” in Saratov drop to 6,871 rubles, and in Moscow – to 34,356 rubles, that is, they will be able to compete with rent payments.

And in any case, on a mortgage for a 20-30-year loan period, a rather solid amount of overpayment runs up, which can reach 50, or even 100% of the cost of the apartment itself.

However, these are all just numbers, the purchase of an apartment on a mortgage is generally a longer-term project than renting a house – it is quite difficult to imagine a rental agreement for an apartment or house designed for a period of at least 10-15 years. In addition, mortgage rates are set only once – at the time of the conclusion of the contract and are most often fixed, so that unpleasant surprises in the form of an unexpected and unjustified increase in the monthly installment do not threaten buyers. And, of course, there is no need to coordinate with the bank all stages of the repair work, report on the dog that has appeared in the family, and so on..

In addition, it is known that the cost of housing in our country is steadily increasing, which is beneficial for buyers who have taken out a mortgage, and can become a problem for renters..

Conclusion

Rent
pros Minuses
Lower monthly fees Rental payments may vary depending on the situation on the real estate market, increase in utility fees for electricity, water, gas and rent, and simply at the request of the owner
A wide range of offers: in different parts of the city, secondary, primary real estate market, with furniture, renovation and without Strict control over temporary residents: bans on pets, redevelopment, coordination of all repair work, and so on
The ability to choose not only the location of the apartment, but also the neighbors The threat of being left homeless due to changes in the owner’s circumstances and the forced need to find a suitable new home literally within a month
There is a chance, in case of financial difficulties, simply negotiate with the owner of the property and ask for an extension Unreasonable demands of the home owner regarding the replacement of pipes, communications or furniture that the tenants allegedly scratched or damaged
There is no overpayment in the form of interest, penalties and fines. The only thing that threatens a tenant who has delayed payment is a “showdown” with the owner The risk of facing fraudsters, for example, being a sub-tenant, becoming a victim of an unscrupulous owner demanding payment for a nonexistent leak, and so on
It is not possible to register in a rented apartment, there is a need to register in another place, for example, with relatives
Mortgage
pros Minuses
The apartment immediately becomes the property of the new owner, he can register here himself and register his family members Monthly payments can be two to three times higher than apartment rental fees
There is no need to coordinate your actions related to the arrangement of the apartment If, in the case of renting a home, it is possible to agree with the owner on dividing the cost of repairing and equipping an apartment in equal shares or deducting costs from the rent, then repairs in an apartment purchased under a mortgage becomes a personal problem for the new owner
Clearly fixed monthly payments that do not depend on changes in the real estate market Overpayment associated with the payment of bank interest. Can reach and even exceed the cost of the apartment itself
The ability to choose one of the types of payments: in equal installments, when monthly payments do not change during the entire term of the mortgage, differential – initially payments are higher, but gradually decrease towards the end of the loan term The presence of penalties and fines in case of late payment of monthly payments. Banking institutions strictly monitor the accuracy of making payments, and if the borrower has not paid contributions for two or three months in a row and has not tried to explain to the bank what caused such a delay, there is a possibility of eviction from the new apartment
The ability to choose from several offers of different banks – you can consider several options with different sizes of the down payment and interest rate The presence of an initial payment in the amount of 10 to 50%, which often becomes the main obstacle for buyers, since the amount can be quite large and it still needs to be found or saved somewhere
The ability to repay the loan ahead of schedule, which will reduce the amount of overpayment on bank loans Additional requirements of banks and related costs, for example, the need to insure the acquired real estate or your own life and health
Over time, the apartment purchased on a mortgage rises in price, and inflation reduces the fixed rates on bank interest

Such a comparison clearly shows that renting an apartment and a mortgage have their own advantages and disadvantages, so to say for sure – everything, only rented housing, well, this mortgage, cannot be done, and vice versa.

It seems that both options for solving the housing issue have a right to exist and provide their target audience. It is clear that apartments are rented more often by easy-going people – students, citizens who have come to a foreign city to earn money, young people who have just started living together and have not yet had children, and so on. But for a long time married couples, burdened with children and the property accumulated over the years of living, “wandering” in rented apartments is an almost unacceptable option, literally, an extreme case (although – people live like this for years and decades, children change schools in case of moving, grow up and acquire “their own”, usually also rented housing).

The main obstacle for mortgage loans to become a more profitable option than rental housing is high loan rates, the presence of a down payment and short loan terms. If the downward trend in interest rates on loans in our country continues, the program of providing young families with preferential mortgage loans finally begins to operate, then mortgages will have a chance to become more common in Russian cities than rental housing. While rent is clearly the leader.

When making a choice between renting an apartment and applying for a mortgage loan, it is worth remembering that the instability of the economy, more frequent economic crises, the likelihood of losing a high-paying job and other unforeseen circumstances make a long-term mortgage a rather risky deal with a bank. So, your own apartment is, of course, very cool and pleasant, but you need to be firmly confident in the reliability of your source of income in order not to find yourself without such a coveted home of your own.

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Comments: 1
  1. Gabriel Palmer

    What are the advantages and disadvantages of renting versus having a mortgage? Is it better to pay monthly rent and have flexibility, or commit to a mortgage for long-term stability?

    Reply
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