Renting A Home Compared To Purchasing A Home

Equity Building

Equity simply refers to the percentage of one’s home owned by the borrower and not the bank. For those who pay for their new homes entirely up front, they immediately own the house. But most homeowners start with a little help from banks in the form of mortgages. As the mortgage gets paid down each month, the buyer begins to own more and more of the home, increasing their equity. For example, if a buyer borrowed 300,000 dollars to pay for the home, and has paid down the principle by 100,000 dollars, they still owe 200,000 dollars but own one-third of the house. Equity building is where renting and owning really come apart. Renters may pay amounts roughly what owners pay, but when their lease is up, the renter has nothing to show for it. Homeowners, on the other hand, gradually accumulate an extremely valuable piece of property as they build their equity. Once the mortgage is fully paid down, there are no major required monthly payments. Home equity can also be used as collateral for further loans, or can be sold for a hefty sum.

Continue reading to learn about potential tax benefits.