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Owning vs. Renting

When you pay rent, you build equity in your landlord's property. When you pay a mortgage, you build equity in your own property. It's that simple. What's more, you can deduct interest from your mortgage and property tax payments on your income tax return.

To help evaluate the financial benefits of homeownership, we've crunched the numbers. The figures shown below represent a typical situation in the Madison area. (Figures are only meant to serve as an example and cannot be guaranteed due to varying lenders' charges, interest rates, personal taxes, property taxes, insurance, and appreciation.) But the difference is clear—home ownership has its benefits.

The Costs Rent Own
Sale Price N/A $240,000
Down Payment N/A $12,000
Closing Costs and Fees N/A $0
Property Taxes N/A $5,280
Loan Amount N/A $228,000
Interest Rate N/A 4.5%
Annual Insurance Premium $120 $450
Tax Bracket 25% 25%
Annual Appreciation N/A 3%

Monthly Payments Rent Own
Rent/Monthly Principal & Interest $1,100 $1,155
Monthly Deposit for Taxes N/A $440
Monthly Deposit for Insurance $10 $38
Private Mortgage Insurance N/A $0
Total Monthly Payment $1,110 $1,633
Income Tax Savings N/A $394
Monthly Payment After Taxes $1,100 $1,259
Property Appreciation Per Month $0 $600
Net Monthly Cost $1,110 $659
Market Value After 1 Year N/A $247,200

This example is based on a 30-day lock, 720 credit score. After-tax payments based on 25% tax bracket. Each person's financial circumstances will differ. Your actual tax savings may vary. Please consult a tax professional for guidance. This chart is an example. Interest and appreciation may vary pending market conditions.

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