The sharp increase in interest rates has altered the calculus of many financial decisions, including how higher mortgage rates impact the affordability and value of owning a home, especially now that the housing market has cooled.

While the decision to rent or buy a home is often couched as a financial one, it is not exclusively so. Lifestyle and personal goals are two other important factors that must also be considered when evaluating the advantages and disadvantages of renting versus buying a home.

Let’s take a look at the pros and cons of each option.

The Advantages and Disadvantages of Renting

There are a number of advantages that may make renting your best option. For instance:

• Renting provides a flexibility that ownership doesn’t. After the lease expires, you are free to move. This may be particularly relevant for those who expect job transfers or are new to an area and want to “test drive” a neighborhood before committing to a home purchase.
• Monthly expenses are more predictable.
• Repairs and maintenance are the landlord’s responsibility, saving you time and money. This may be especially attractive to empty nesters.
• There is less paperwork or upfront payments.

There are some disadvantages, however, including:

• The landlord can raise rents upon lease renewal or decide to sell the property, which could force you to find new living quarters unexpectedly.
• There are no tax benefits to renting.
• Tenants are beholden to the landlord. For example, the landlord may be slow to respond to repairs and other requests or have rules that may be restrictive.

The Advantages and Disadvantages of Buying

The advantages of home ownership include:

• There is a sense of stability and community that many people value, especially families.
• Equity is built over time.
• Tax benefits are offered in that mortgage interest and property taxes may be deductible.
• You own the property; there is no landlord to answer to. As the owner, you could even make improvements for resale value or quality of life.

The disadvantages are:

• Buying a home requires a down payment and a substantial amount of paperwork and lead time for moving in.
• Responsibility for all repairs and maintenance, along with their costs, means living expenses can be more unpredictable.
• Homes are highly leveraged, illiquid assets, which present the risk that you could lose money or be unable to readily sell it at the desired price.
• Managing a home is a huge time commitment that everyone may not want.

To help you make a more informed decision, you may want to begin with this buy versus rent calculator.

Please reference disclosures at: https://blog.americanportfolios.com/disclosures/