Should you buy a home or rent?
Your co-workers, parents, and favorite restaurant owner will all have an opinion on this question. But what do personal finance experts have to say?
David Bach, the author of the recent NY Times bestseller The Latte Factor, advises you to buy. He calls it the “escalator to wealth in America”. He says that one of the secrets of people who retired at 50 years old was paying off their mortgage early.
Here are 4 ways to pay your mortgage off early:
- Add 10% to your monthly payment and make sure the bank applies it to your principle. If your payment is $1,000, start making a $1,100 payment instead. This can knock up to 5 years off the time it takes to pay your mortgage in full.
- Make bi-weekly payments instead of monthly. This has the result of making an extra payment each year. 26 half-payments add up to the equivalent of 13 full payments. Find out how this can impact your mortgage outcome with THIS CALCULATOR.
- Make an extra payment each year. If you get a raise, a bonus, or a windfall, use it to apply an extra payment on your mortgage.
- Switch to a 15-year mortgage. This is not feasible for everyone, but if you can do it, you could save hundreds of thousands of dollars in interest.
Bach does encourage renting in the following situations:
- You think you’ll be moving in the next three years. Plan on buying if you know you’ll stay put for at least five years.
- Your job situation is unstable. If you’re living paycheck-to-paycheck or are unsure of the future of your job, it’s better to rent. Wait until you can set aside a downpayment AND several months-worth of payments to ensure you can make payments on time and in full.
- You’re planning to have kids in the near future. It’s better to rent now than to purchase a small space that will need to be upsized right away.
In general, buying a home is the best financial advice for those who want to retire early and build wealth.
For more information about David Bach, visit https://davidbach.com/.