The Comprehensive Guide to Our Mortgage Calculators (Part 2)
If you are new to mortgages, then you may be wondering whether a mortgage would actually be better for you then renting. Perhaps you are interested in buying a house, but fear that doing so would cause you to spend far more money than you would spend renting. Actually writing out the calculations needed to compare renting to buying would be difficult and could possibly induce a headache.
To help you avoid these headache-inducing calculations, the Local Mortgage team in Colorado developed mortgage calculators for our customers. Part one of The Comprehensive Guide to Our Mortgage Calculators aimed to take the mystery out of the monthly cost of mortgages. In part two, we will discuss how our renting vs. buying calculator can help you compare the cost of a mortgage compared to the cost of renting. Read on to learn how to make the most of our renting vs. buying calculator.
The Aim of the Renting vs. Buying Calculator
Like in the guide to our mortgage payment calculator, we will begin by explaining the purpose of the renting vs. buying calculator. At Local Mortgage, we realize that many clients wonder about the costs of a mortgage compared to renting. Despite this wonder, actually calculating the costs of a mortgage vs renting over the same time period seems almost impossible to most people.
So, we set out to make this comparison easy to do. We also hoped to create a calculator that could give you a clear picture of which option would be better for your situation. The result was our renting vs. buying calculator.
Adjusting the Calculator
Like all of the calculators on our site, the renting vs. buying calculator features sliders. These sliders allow you to adjust the information going into the calculations to make it match your situation. Thanks to these sliders, you can easily see how your options stack up against each other. Additionally, we tried to include enough sliders so that it would be straightforward to compare your specific buying and renting options rather than just a general comparison based on standard numbers.
Our renting vs. buying calculator includes the following adjustable sliders:
Home purchase price - the price of the house purchased with your mortgage
Down payment - the amount you have to pay upfront on your mortgage
Annual property tax - the yearly amount of taxes you will pay on the house you buy
Monthly HOA dues - the monthly fees due to the homeowners association (HOA) that you will become part of if you buy a house
Annual home insurance - the cost of insuring a house you buy
Loan term - the number of years associated with your mortgage
Interest rate - the interest rate collected on your mortgage
Monthly rent - the amount of rent you would pay each month to your landlord
Annual rental insurance - the yearly cost of your renter’s insurance
These are the basic sliders necessary to compare renting to buying. Below these sliders, our calculator has another tab featuring more assumptions you can adjust. These include:
Evaluation timeframe - the number of years you would like to see the cost of renting and buying compared
Annual rent increase - the expected percentage increase in rent per year
Appreciation rate - the rate at which the value of property you own increases
Marginal tax rate - your marginal tax rate
Pre-tax savings rate - the interest on your savings prior to taxes
Annual inflation rate - the expected annual rate of inflation for the economy (usually between 1.5% and 2.5%)
While these assumptions are simple to adjust, we don’t advise you to change them in most cases. If you know that your specific situation requires different numbers than the standard assumptions, then go ahead an adjust these. We tried to give you enough flexibility to make the calculator meet your needs while also being easy to use. The standard assumptions of the calculator are acceptable for most cases.
The Output of the Calculator
After adjusting the main sliders to meet the details of your renting and buying options, the calculator automatically updates itself. The resulting information shows the cumulative costs of renting and buying over the period of evaluation. Under this information, we also display which option saves you more money over this period, as well as how much money it actually saves.
Our renting vs. buying calculator also generates a graph depicting the advantages you get from buying instead of renting. This graph is essentially a bar chart showing the savings you get between the two options. The calculator also generates a table depicting a detailed yearly analysis of the financial picture for each option.
The renting vs. buying calculator from Local Mortgage allows you to customize details and then it quickly generates a straightforward comparison between buying and renting. We tried to show both detailed evaluations (the Yearly Analysis) as well simple visualizations. This calculator should help you see quickly and clearly which option is better for you.
The ultimate goal of the Local Mortgage team is to make mortgages simple for everyday people. We know you don’t have the time necessary to learn all the mortgage jargon and understand the nitty gritty details. That shouldn’t stop you from buying the house of your dreams though.
We hope that our renting vs. buying calculator will provide you clarity and allow you to compare your options easily. It may even show you that a mortgage could be less expensive than you imagined possible.
Look out for part three of our guide to the mortgage calculators from Local Mortgage. After you read all three parts, you should be able to navigate our site with ease and hopefully see what mortgage options are great for you! If you feel ready to take out a mortgage on your dream home, then contact Local Mortgage. Our team is ready to help.