Renting and owning a home are two entirely different things. That being said, there are some similarities that you should understand as well. Both mortgages on homes you own and renting are a great way to get the home you want by the means that you have at your disposal. With some basic groundwork, you can quickly and easily understand the major similarities and differences between mortgages and rentals.
What does it mean to be a Renter?
It helps with any topic to first lay out the basic ground terms so that you can start to understand. Being a renter does not mean that you own the home for starters. Rather, it means that you are paying the person that owns the home or an apartment each month for the right to live there exclusively. This means you are basically paying to live there each month. Generally, the rent payment will include the expenses that it takes for the owner to keep the home or apartment in good livable condition.
Some rentals offer utilities like lights and water included in the price of renting while others set a flat rental rate then you pay the utilities on your own. Those rentals that have utilities included are going to be more expensive and are more common in apartments than in homes that are being rented due to the difference in the amount of electricity and water that it takes to keep an apartment running than it does to keep a house running. Your rent might also cover things like cable and the internet but again, this is not the norm and you should go into renting with an open mind in this case.
What does it mean to be a homeowner with a mortgage?
First and foremost, a mortgage is another term for a loan used to purchase a home. Instead of putting up collateral, you would like to take out a small loan to work on your home, the home itself is the collateral and if payments are missed to the point of foreclosure, the bank or lender will come and take possession of the home and sell it off to get back the remainder of the loan.
Your initial mortgage is going to be the amount of money that you took out to buy the home in the first place. This might be less than the home was listed for, if you have a down payment on the loan to help lower interest rates. A mortgage payment each month is one more payment toward owning your home outright and being able to stop worrying about making monthly payments to the bank. You can take out second or even third mortgages against the value of the home to do things like consolidate debt or to make improvements on the home as well.
Similarities in Mortgages and Rent
The first similarity is that they are both monthly payments for the rights to live exclusively in the space. If you pay rent or a mortgage you have the right to allow or deny people to live in the space with you and to be in the space. Another similarity is that your monthly payment is going to reflect the value of the home or residence. Both mortgage and rent are going to be fairly steady when it comes to cost and are not likely to rocket up a huge amount or plummet a huge amount either.
Another similarity is that you pay your rent or your mortgage each month to another party and the money goes towards the value of the residence. Your monthly rent is likely going towards paying a mortgage if you are renting a home.
Differences between Mortgages and Rent
Though there are some similarities, there are far more differences. For starters, a mortgage is making a payment toward owning the residence in full. Rent, unless you are doing rent to own, is going towards a lease which means that at the end of the lease, your landlord could choose not to renew your lease and you would need to seek an alternative residence.
Another difference is that those that hold a mortgage ultimately have more control over the residence and over what happens inside the residence than someone that is paying rent. In a rental situation, your landlord can tell you how many people can live in the home, what home improvements you can make, and if you are allowed to do things like renewing paint or getting a pet.
Another difference is that a mortgage can go up and down depending on your individual interest rate and on the market and economy. Your mortgage can fluctuate by a few dollars to a hundred dollars over the course of a year but your rent is likely to stay the same no matter what.
When it comes to renting and mortgages, it all depends on what your preference is. If you do not want to get stuck owning a home that you may not want to be living in a year, a rental might be right for you. If you cannot imagine paying for something that you will not own one day, a mortgage is the way to go. No matter what you decide, educating yourself is the best course.