Should you rent or should you buy your home? It takes more than
looking at your mortgage payment to answer this question. This
calculator helps you weed through the fees, taxes, and monthly
payments to help you make a decision between these two options.
This report is based on the original purchase price, fees and taxes
payable at that time. Insurance and tax costs can fluctuate from
year to year. Click the "View Report" button for a detailed look at
the results.
Definitions
Price of home
Purchase price of the home you wish to buy.
Cash on hand
Cash you have for the down payment and closing costs.
Interest rate
The current interest rate you expect to receive on your
mortgage.
Term in years
The number of years over which you will repay this loan.
Property tax rate
Your property tax rate. 1% for a $100,000 home equals $1,000
per year in property taxes.
Home insurance rate
Your homeowner's insurance rate. 0.5% for a $100,000 home
equals $500 per year for homeowner's insurance.
Loan origination rate
The percentage the lending institution charges for its
origination fee. 1% for a $100,000 home equals $1,000.
Points paid
The total number of points paid to reduce the interest rate of
your mortgage. Each point costs 1% of your mortgage balance.
Other closing costs
Estimate of all other closing costs for this loan. This should
include filing fees, appraiser fees and any other miscellaneous
fees paid.
Association and maintenance fees
Any association fees you are required to pay per month with the
ownership of this home. Also include any other maintenance costs
you expect to incur with the ownership of this home that you are
not paying while you continue to rent.
Total for down payment
Total funds remaining for down payment.
Mortgage amount
Total amount of loan.
Monthly rent payment
Amount you currently pay for rent per month.
After-tax investment return
The rate of return, after taxes, you could receive if you
invested your closing costs and down payment instead of purchasing
a home.
The actual rate of return is largely dependent on the type of
investments you select. From January 1970 to December 2008, the
average annual compounded rate of return for the S&P 500,
including reinvestment of dividends, was approximately 9.7%
(source: www.standardandpoors.com). During this period, the highest
12-month return was 61%, from June 1982 through June 1983. The
lowest 12-month return was -39%, which happened twice, once from
September 1973 to September 1974 and again from November 2007 to
November 2008. Savings accounts at a bank may pay as little as 1%
or less but carry significantly lower risk of loss of principal
balances.
It is important to remember that these scenarios are
hypothetical and that future rates of return can't be predicted
with certainty and that investments that pay higher rates of return
are generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time, especially
for long-term investments. This includes the potential loss of
principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not
reflect sales charges and other fees that funds and/or investment
companies may charge.
Income tax rate
Your current marginal income tax rate.
Expected inflation rate
What you expect for the average long-term inflation rate. A
common measure of inflation in the U.S. is the Consumer Price Index
(CPI), which has a long-term average of 3.1% annually, from 1925
through 2008. The CPI for 2008 was 4.0%, as reported by the
Minneapolis Federal Reserve. Inflation rate is used to adjust
amounts subject to annual increases. These amounts include rent,
insurance and tax payments.
Home appreciates at
Annual appreciation you expect in the home you are
purchasing.
Future sales commission
The percent of your home's selling price you expect to pay to a
broker or real estate agent when you sell your home.
House payment
Total of principal, interest, taxes and insurance (PITI) paid
per month for your home. Insurance includes Principal Mortgage
Insurance (PMI) and homeowner's insurance.
Initial tax savings
The value of the tax deduction you receive on your mortgage's
interest and home's property taxes. For example, if you have $900
in interest and $100 property taxes per month, the value of the tax
deduction would be $250. (At a tax rate of 25%).
Initial principal payment
Total of principal paid per month on your mortgage.
Net house payment
Your initial house payment minus the value of the tax deduction
and principal payment.
Net home price
Net selling price of your home after subtracting any sales
commissions.
Monthly PI
Monthly principal and interest payment.
Monthly PMI
Monthly cost of Private Mortgage Insurance (PMI). For loans
secured with less than 20% down, PMI is estimated at 0.5% of your
loan balance each year.
Information and interactive calculators are made
available to you as self-help tools for your independent use and
are not intended to provide investment advice. We can not and do
not guarantee their applicability or accuracy in regards to your
individual circumstances. All examples are hypothetical and are for
illustrative purposes. We encourage you to seek personalized advice
from qualified professionals regarding all personal finance
issues.
