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To Buy or Rent? How best to navigate the decision and end up ahead


October 09, 2012 | Insights

Given the significant drop in interest rates in the US and globally, the issue of renting versus buying has been a very hotly debated topic as of late. Despite all the analysis, the right answer is as much based on market conditions as it is on personal circumstances.

There are dozens of indices out there that exist to try to inform potential consumers on whatrent vs buy course of action is most appropriate for them based on where they are physically looking to rent or buy. Unfortunately, most of these indexes spit out a rather simplistic rent-to-buying ratio, based on a few isolated assumptions, essentially weighing monthly rent prices against mortgage payments in a given area. These conventional rent-buy ratios suffer from another major flaw. Most base their results on a methodology that compares existing prices of for-sale listings or recent sales against prices of properties on the rental market, providing interested consumers a misleading assessment of what the most appropriate course of action may be and what their potential purchasing power can get them. In most cases, there is a strong dissimilarity in the quality of rental property inventory to sale property inventory. That is, when comparing rental homes to homes for sale at similar price points, most rental homes are typically of lower quality. For example, in high-demand areas of California, one can purchase a $450K condo but look to rent the same quality condo for nearly $1000 over the mortgage rate.  This is due to the limited existing inventory and high demand for quality properties.

Buying a home is a much more complex decision drawing in a number of other factors. To get a more accurate indication of what the most appropriate course of action might be for you, consumers should consider further critical factors in addition to the simple rent to buy ratio.

First, consider the anticipated future prices and rents in the given area. Are prices predicted to rise, stabilize or fall in the short to medium term (2-5 years)? If so, by how much? Ensure you do your due diligence as even an intelligent and informed guess at these figures could help save you thousands of dollars in payments (rent or mortgage) towards your home.

Second, consider your time horizon (i.e. how long you plan on staying in your particular home). Most new home buyers should look to staying within their homes for at least 5 years to overcome the initial transaction costs and selling costs. Though this is a general rule of thumb, there are some areas in the US housing market that have been so greatly affected by the financial crisis that many analysts predict the time horizon can be significantly shortened to overcome initial transaction costs.

Third, consider the lost opportunity costs, which in other words is the return you could have earned by investing your money instead of spending it on a down payment and closing costs. Any sensible assessment should assume you would earn profit from investing this amount, but the profit you would have made in your investments will be taxed as long-term capital gains. In thinking about either renting or buying, ensure that the renting vs. buying index or calculator you use tabulates lost opportunity costs for both scenarios to yield the most optimal outcome.

Other factors to consider include your eligibility for tax deductions, your credit rating, potential maintenance costs for the new property.

Though mortgage rates have fallen and most assessments support buying over renting given the current state of real estate markets, potential consumers should carefully consider the impact of a rise in interest rates on the cost-effectiveness of this scenario. In the event of an increase in interest rates, borrowers could look to arranging fixed rate mortgages to mitigate potentially significant price hikes and protect themselves against risks of uncertainty.

For more information about renting vs. buying in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at We’re a trustworthy Californian mortgage company helping every day consumers refinance their mortgages and make smarter real estate decisions.



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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  | Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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