When you’re renting, you’re not creating any ownership value in the property for yourself but you’re also not responsible for all the added costs that go along with it.
There is a potential upside however, if you find that renting would be less expensive than buying. You can take the money you’re saving each month and invest it in stocks or mutual funds so you’re still seeing some kind of growth.
Owning means a tax break
One of the ways that homeowners are able to offset some of the costs of buying a home is by claiming a tax deduction for the interest they pay on their mortgage.
For 2014, you could deduct the interest paid on loans valued at $1 million or less, or $500,000 if you’re married and filing separately. You’ll have to itemize to claim the deduction but it can add up to some serious tax savings once April 15 rolls around.
Rent, on the other hand, usually isn’t deductible unless you’re using part of the property as a home office.
Bottom line of renting vs buying a home
Whether it’s smarter to rent or buy really comes down to what’s the best fit for your lifestyle and your financial situation.
If you know that you’ll be ready for a change of scenery down the road or you’re planning to expand your family at some point, there may not be a need to rush into buying a home. The same is true if you’re comfortable with the amount of money you’re paying to rent and you don’t feel like dealing with the extra hassles of owning a home.
On the other hand, mortgage rates won’t stay low forever and the longer you wait to buy, the greater the risk that rates will rise sharply. If that happens, you’re looking at paying more for the cost of your home in the long run.
There’s always the possibility of refinancing once rates drop again but it’s not guaranteed. Buying a home usually makes the most sense when you’re planning to stay put for awhile so if you’re ready to settle down for the long haul, there may be no better time than the present to start shopping the market.