Evaluating the Costs of Home Ownership

The decision to own or rent a home is generally based on three elements: cost, investment, and personal preference. Homeownership may be more expensive, initially, given the upfront costs associated with buying a home, such as closing costs and a down payment. But in the long run, homeowners build equity and save on taxes.

Homeowners can deduct mortgage interest and property taxes, which may represent considerable savings in regions where property taxes are high. While renters miss out on these tax savings, they generally need less cash on hand for emergency repairs or general maintenance, upkeep that can be expensive for today's homeowner. Renting also offers more flexibility for those who anticipate relocating for work or other reasons.

The following calculations may help you decide whether you should rent or own:

1. Write down the purchase price and financing terms for the house or condominium. Include the down payment and closing costs (including any points).

2. Estimate your monthly expenses as a homeowner (mortgage payment, property taxes, and any maintenance or repair work). Calculate what this amount totals in 10 years. Add this amount to the number from the previous calculation. This is your estimated "net outlay" as a homeowner.

3. Calculate your current rent for the same 10 year period.

4. Compare these two numbers. What is the difference between rent paid and "net outlay" as a homeowner?

While the above method offers a rough comparison, you can also check any number of online calculators to compare owning versus renting a home. To decide which may be a better option for you, ask yourself these questions: Do you want to build equity in a home that can be used for future unforeseen expenses and renovations versus having nothing accumulated in equity in the property you rented for the same period? Are you interested in the tax savings available when you deduct property taxes and mortgage interest paid if you owned a home? Do you want to be responsible for all repairs and maintenance work on your home, or would you prefer to be able to call someone else to financially handle them? Analyzing your short- and long-term goals can help you determine whether renting or owning best suits your lifestyle and your financial situation.  

Article provided by Brad Seib - MetLife Financial Representative

Money Planner Volume 19 - Number 2

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor.

MetLife and its agents and representatives may not give legal or tax advice. Any discussion of taxes in this communication or related to this communication is for general information purposes only and does not purport to be complete or to cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any products for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.

Copyright 2008, Metropolitan Life Insurance Company, New York, New York. MONEY PLANNER explores ideas and summarizes information to help you meet the challenges of the future. For advice and guidance on specific subjects, consult your financial service representative and/or your legal and tax advisor. Like most annuity contracts and insurance policies, MetLife policies and contracts contain exclusions, limitations, reductions of benefits, and terms for keeping them in force. For complete costs and details, see your MetLife representative. Metropolitan Life Insurance Company, New York, NY. Securities products offered by MetLife Securities, Inc. (member FINRA/SIPC). 200 Park Avenue, New York, NY 10166. Metropolitan Life Insurance Company and MetLife Securities, Inc. are affiliates. This document provides a very general overview of some types of retirement plans available. This overview does not take into account specific distribution rules for each type of plan. For specific information, please consult yor tax advisor. Neither MetLife nor its agents render tax, legal, or accounting advice for which you should consult with your legal or tax advisor. Date of first use: 04/08.