Decision Making by Individuals and Firms

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Decision Making by Individuals and Firms
Decision-making on whether to rent or buy needs to be based on certain financial considerations. As a nursing practitioner in Chicago earning $106,962 per year, I would decide between renting a home and buying a home by first understanding how I will build the home equity and how having a mortgage will affect my taxes. Purchasing a home is a long-term commitment which involves building home equity by paying the mortgage over time. In the first several years, the monthly payments for the mortgage primarily go towards interest and not equity. The home price will be $200,000. The monthly breakdown will be as follows (down payment is $15000, the interest rate is 4% and the mortgage period is 30 years).
Monthly principal and interest payments $883
Monthly mortgage Insurance payments $233
Property taxes $135
Private mortgage insurance $77
Total monthly payments $1328
The options for renting and buying a home both have pros and cons. The obvious advantage of renting is the flexibility because a tenant can relocate freely from one location to another once the lease expires. Secondly, renting can be cheaper than buying in the short term. The advantage of renting is that there are no costly maintenance, repairs, insurance bills and land rates that usually comes with home ownership.

Renting, on the other hand, has some disadvantages and the obvious one being uncertainty. Tenants normally have little say on how long they will occupy a rental property. Home ownership gives some sense of stability (Contessi and Li 3). Secondly, renting is costly in the long-term, considering the point that rents will always continue rising. Furthermore, a tenant will never stop paying rent, unlike mortgages that usually takes 25 to 30years. The comfortable rent that I will manage to pay is $800. Considering the two options, I would go with the mortgage because it’s cheaper in the long-run.
Work Cited
Contessi, Silvio, and Li Li. “Rent or Buy?” Economic Synopses 2013.2 (2013): p.3. Web.