First Person: When I Buy, When I Rent

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When I was younger, I rented simply because I didn't qualify for a mortgage. Now that I'm older, I base my decision on other factors including what's happening in the economy. It goes without saying that people who move around a lot are better off renting or staying with relatives rent-free if they can. However, as a person who can settle down in one place, the decision to buy instead of rent was an easy one for me.

Looking at interest rates

I remember growing up in the 1980s when interest rates had reached 13 to 15 percent. A lot of people stayed put because they couldn't afford a new loan at a higher interest rate. Even 8 or 9 percent seemed attractive compared to 16 percent. I've only been a homeowner in the last decade. I think anyone who has a mortgage with an interest rate less than 5 percent would be foolish to sell their home to become a renter.

Renting out the property

A friend of mine is transferring to a new job in Virginia where she can live rent-free with her mother. A single woman, she has a home in Georgia that she purchased for $150,000 at an interest rate of 4 percent. Instead of selling her home in Georgia, my friend is renting it out for $1,100 a month. That will cover her mortgage. If interest rates stay low and she finds a home to purchase in Virginia, she can then sell in order to qualify for a loan for her primary residence. However, if interest rates skyrocket, she will still have an excellent investment.

Paying extra on our mortgage

It makes no logical sense for me to pay down my mortgage when I have such a low interest rate. However, I do it every month because I want to have the peace of mind knowing I don't owe any money to lenders. I also want to have a better cash flow. Some people pay off the mortgage on their primary home so they can turn it into a rental property. I don't want any added financial responsibilities.

Being underwater on a home

I have some friends who chose to do a short sale on their homes because they were underwater on their mortgages or owed more than the house was worth. They became renters instead. The problem in my community is that it costs more to rent than to buy. I am not sure I could even afford renting my own home if I didn't already own it. Instead of bailing when we were underwater, we kept paying extra. Now we have equity in our home. If we had sold our home in a short sale or gone into foreclosure, we still would have needed a place to live. I don't know how renting instead of paying down our mortgage would have gotten us further ahead.

If my husband and I had to relocate due to job circumstances, we would be forced to rent until we could sell our home and purchase another one. However, I would be reluctant to buy unless we felt as though we would want to live in a certain location for more than 10 years. Also, I wouldn't have any interest in buying if interest rates shot back up to 7 or 8 percent. After enjoying 4 percent interest rates, I'm not sure anyone from my generation could tolerate high interest rates in the future.

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More from this contributor:

Playing Catch-up with my Retirement

3 Stupid Moves to Get Out of Debt

What We Gave up to Get Our Dream Home

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