Renting vs Buying House On Mortgage
Should we rent or buy a house on mortgage?
Many of our friends and people we know ask us the same question: How can you afford not to have a full-time job and travel the world and pay all the bills? Well, there is no secret formula for that. We already mentioned how we earn some money while being job free and you can read about it here. A lot comes to choices all of us make on a daily basis.
There is a dream that most of young people have. Becoming a proud home owner with their own place that they can call home and which is only theirs. We once had the same dream. When it comes to housing most of the people follow the common narrative, i.e. getting a mortgage and buying a house.
In this article we present some of the issues to consider before deciding between long-term renting and buying a house on mortgage and why we have consciously decided not to buy a house on mortgage and live in a rented accommodation instead. I need to mention here that when we learned how money is created (by debt, but this is another huge topic we will cover later), we decided not to support and contribute to this system which is totally against humans’ well being!!
Except this main reason, we have listed other reasons which contributed to our long-term renting decision:
1. Ease of moving – we love travelling and staying in different places for longer time! If you get a mortgage and buy a property and than decide to live somewhere else you face a daunting task of selling the property. And that means marketing the property,finding a buyer for the right price, dealing with real estate agents, lawyers, your mortgage bank etc. Alternatively, you can rent out your place but that you still need to get a place in the new country, city or region where you are heading and going through the same round of real estate agents, lawyers and mortgage applications. This all makes your life overly complicated. With renting you just terminate your lease and find a new place you like in your new destination. Simpler your life is, happier you are 🙂
2. Lifetime events – Have you considered that life is a constant flow of events which we rarely have any control of and that because of them, you may be forced to move houses? Meeting someone new, having another child, divorce, illness and many other life events can bring about the necessity to either upscale or downscale your accommodation. Going through any of these can be challenging enough on its own but if you add on top the regular list of real estate agents, lawyers, brokers and banks your situations can become very stressful. Don’t forget that it can take up to a year to sell a property. So imagine how incredibly inflexible you become with a mortgage on your shoulders.
3. Repairs and maintenance – If you own a property you have to look after it, otherwise its value would quickly decrease. Minor repairs, regular upgrades, possible emergencies. This all eats up your free time that you can spend with your friends, family or enjoying leisure activities. If you rent, however, all major repairs and maintenance is taken care of by the landlord. Broken boiler? Leaking roof? Dripping taps? Just call a landlord or his agent to fix it at landlord’s costs and and enjoy whatever you would like to do in you free time. Obviously you need to look after your renting property nicely and we always treat our rented houses as our own!
4. Government taxes- It is usually very difficult to avoid paying taxes imposed on a property. Governments in many countries take advantage of it by imposing stamp duty on property purchases, regularly paid land tax, land registry fees and many other hidden taxes on home owners. In fact, in some countries you have to even get a mortgage to pay not only the purchase price of the property you are buying but also the stamp duty to feed the taxman. If you rent, on the other hand, there are usually no other payments apart from rent, electricity, water and gas usage if applicable.
5. Changing interest rate – As if it is not too bad already that you have to pay interest on your mortgage loan, which in simple terms mean that you pay your property few times over, there is something worse. Changing interest rate. You have no control over what the interest rates will be like when a refix of the interest rate on your loan come due. Due to the structuring of interest and principal repayments even a small increase in the interest rate can translate into a substantial increase in your monthly repayment. With long-term renting you cost of accommodation is defined in your rent agreement and cannot be altered unilateral so you do not have to be fearful of what the economy will be like in the future.
6. Loosing your deposit – You are certainly aware that banks do not lend you 100% of the purchase price of any property. Part of the purchase price has to come from your own resources. This amount is called a deposit. It means that you have to put up substantial amount of money upfront to get your mortgage application approved. E.g. if you are buying a house worth $400,000 dollars and your bank lends only 80% of that amount you have to put on the table $80,000 which becomes your equity in the property. Now, this equity becomes fully exposed to changes in house prices. So if the property price, for whatever reason, drops to 320,000 all your savings you put into your house are wiped out without you possible doing something about it. If you rent, your hard earned savings become your financial buffer for whatever contingency you may encounter or you can invest in financial markets and make a living by trading shares (this is what we did!). You are not dependent on the house prices development. Your savings can work for you and be always ready to use without the burden of selling your property.
Owning a property. Really?
I can already hear you saying something like: ‘But isn’t it better to pay the bank and to become, month after month, the owner of the property?’ Well, it could be if it’s actually the case. But it isn’t. Due to the fact that you pay interest on the outstanding amount of the loan and to ensure constant installments during the life of the mortgage, especially in the early years, up to 80% of your monthly payment accounts for interest and only the rest for outstanding loan balance repayment. In this way you feed the banks’ profits but not your home ownership dream.
But some can still say: ‘But despite all you have just mentioned, it is still better to sit in your own house and to be able to say, this house is only mine!’ Well, folks, bad news for you. Getting a mortgage loan means that your house is pledged as security for the repayment of the loan. Therefore, if you ever missed any payment until the full repayment of the loan the bank can always foreclose, knock on your door and kick you out of “your” house. Not much different from a landlord requesting his house back and terminating your rent agreement. Landlords, however, good value long-term tenants and are easier to take to should you get in to financial difficulties.
Our verdict is clear, getting a mortgage brings too much of unnecessary fear and pressure in one’s life. Renting is more flexible, less paperwork an more fun:-) We rented few places in the UK and Australia and each had its unique feel and charm. Each place left us with wonderful memories and we enjoyed all of them to the fullest without being the home owner. We love the flexibility that living a mortgage-free life offers.
Feel free to ask questions which we will answer in the next article. You can also subscribe to our newsletter not to miss any of our articles on this blog 🙂
Michael and Eva
Wery inspiring point of view to living… We have mortgage end in 2024 and we want to repay it before the appointed time because we want to be free. For us is mortgage one form of investment and we say never more again.
Long term renting is good idea for freedom and after repay of mortgage we will breathe more freely 😉
We appreciate your blog initiative very much and we are looking forward to the next article…
Note, the landlord that has a mortgage is paid by people that rent (know as tenants). If you look at it this way it’s definitely a more positive angle than renting without a place you rent and then owe at the end of it.
More to come on property on http://www.kam-consult.co.uk
I Understand Jimmy where you come from. Our point in the article is to live as risk free as possible and as simple as we can. So although the landlord has the mortgage and the tenants pay HIS mortgage, the landlord is responsible and takes all the risks connected with buying and owning a property. In addition, the landlord needs to live somewhere else.. maybe to get another mortgage unless he already owns his first property he rents out and the list goes on.
Our point is to make life simple, easy and less stressful 🙂
Interesting article. Definitely Food for thought.
Dear Eva and Michael,
When you live a job free life this means no salary sheet. Then how do you manage the renting requirements when the landlord is asking for at least your last 3 salary sheets and a certain amount of income?
I am Slovak, living in Switzerland after some years spent in France.
Many thanks to sharing your experience, I like the way of your writing… very inspiring and open minded.
Lot of love and fun,
Rada by som dostavala vase clanky… Zatial som si teda precitala len 2, ale rada si necham poradit alebo sa inspirovat v buducnosti.