Real Estate
December 13, 2017
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The dicey reality of renting vs. buying in Sonoma County

By: Scott Sheldon
November 24, 2017

Whether you buy a home or rent a home you will still have a housing payment obligation to make each month. The unfortunate reality in Sonoma County, Ca. is that in many cases you could be easily paying more in rent than you would for a mortgage. Not everyone who rents should be dong so and not everyone that buys a home should. There are more affordable no and low-down programs today than ever to help those tight on cash to get their foot in the door. You may be surprised to learn you can purchase a home. This article is intended for those who can afford to buy a home, but still opt to rent.

Why renting can be financially risky

The fact about renting that is problematic to personal finance is that it is not fixed. When you rent, effectively you have an adjustable rate mortgage. Rent is not stable and is subject to change based on market conditions and/or as the landlord sees fit. This means after your lease, your rent payment is subject to change, which can be unsettling in creating and sticking to a personal budget.

Renting has more flexibility as in not being tied down to a property. The cost of this flexibility is acceptance to a variable housing payment. Similarly, rent can be compared to an adjustable rate mortgage loan. Most residential mortgages originated today are fixed rate loans e.g. for 360month/30years. However, rent is borderline equal to an adjustable rate loan. The adjustable loan product offered today changes either once per year or twice per year usually tied to the 12 months or six months Libor. The Libor index trails the Federal Funds Rate, which is poised to rise in the future. This occurrence will likely be due to our exuberant economy displaying a strong housing market and job confidence. These two factors lead to inflationary concerns that the Federal Reserve has been maintaining a healthy economy. Most home- buyers people opt for fixed rate mortgage terms even though they are the most expensive because they are the most safe and stable. When you rent a home effectively you have an adjustable rate mortgage tied to the Libor that is never ending.

Not all, but in many cases purchasing a house could make more financial sense in the long run than renting knowing your savings could always be impacted by a rent payment change. If you were to compare the risk of renting to the cost of home ownership and you factor in the forced savings that you receive on amortizing principal and interest fixed rate mortgage, and the tax benefits with the potential wealth accumulation (increased equity over time) there is a good case to make to consider upgrading to homeownership.


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Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at