Why Your Rent Is Often More Than Your Mortgage Payment
Tenants, frustrated by headlines about the hot housing market that make it seem like their last chance to buy a property, won’t be comforted by reports that rent payments currently exceed average monthly mortgage payments . But comparing the cost of owning and renting on a monthly basis is not easy as home ownership carries with it a ton of hidden costs. In fact, there are perhaps advantages to sticking to rentals even when house prices are skyrocketing.
Why is the rent higher than the cost of the mortgage?
The commenters on this Reddit thread put it best: “Your rent is the biggest amount you will ever pay each month. And your mortgage is the smallest amount you will ever pay each month. ” Why is that? Well, homeowners have to cover costs that the tenant won’t have to pay, at least not directly:
- Property tax: $ 2,471 per year on average (and much, much more in some areas ).
- HOA monthly fees: on average $ 250 per month.
- Repairs and maintenance: an average of $ 170 per month.
- Homeowners Insurance: an average of $ 80 per month.
- Utility bills: an average of $ 200 per month.
- Private mortgage insurance: an average of $ 160 per month.
- Flood insurance at the creditor’s request: on average $ 61 per month.
Other possible costs could include garbage collection, water and sanitation services, pest control, tree pruning, property maintenance, and earthquake insurance. Landlords, of course, still pay for these costs, but many of them are already included in the rent.
Of course, as any jaded renter knows, you can get stuck with a poor or cheap landlord who saves on renovations and pest control. However, the costs are real, and they exceed the amount the owner pays on the mortgage (a more detailed breakdown can be found in this Lifehacker post ).
That being said, no pity is required – houses are also assets that tend to rise in value, often by more than 10% per year , so they are quite valuable even with the current cost of ownership.
Why rent is not so bad
Cost certainty and flexibility are underestimated aspects of renting. When you are renting, you know exactly how much will a month to spend on housing. Unlike a homeowner, you don’t have a 30-year mortgage obligation to worry about, and you don’t have to pay unexpected expenses like a new HVAC system or boiler for several thousand dollars apiece – at least , not directly. Another advantage of renting is that, unlike home ownership, it is much easier to move when you change jobs, expand your family, or find a better and cheaper place to live. This, of course, does not make renting more affordable, but it has its advantages.
How to know if the rent is too high
Research and compare rental rates for similar properties in the area where you want to live and determine the average monthly rate for the apartment, the number of bedrooms and the amenities you are looking for. This is also how many landlords determine their own prices , so use your research as leverage to negotiate a lower monthly rent . If you don’t like what is on offer, you will at least have the opportunity to look elsewhere.
It’s also worth mentioning here: If you are delaying your rent payments as a result of the pandemic, consider your rental assistance options as outlined in this Lifehacker post .