which is more advantageous and why
Installment or rent?
Changing a job or maybe a new family member are strong enough reasons to make an important change in your life: choosing a new home.
When the time comes for such a change, most of us have 2 options:
- Purchasing the future apartment by mortgage
- Renting it
Of course, having your own home has obvious benefits:
- You can organize your home the way you want
- There is no risk of being kicked out of the apartmen
- You own a property that, over time, will increase in value
But, if you are like us, in addition to the benefits of quality of life, you are also financially interested in which of the 2 options is more friendly to your budget.
To answer this question, we informed ourselves, we collected data, and we arranged the information in an easy-to-understand table so that you can make the decision effectively.
We compared the rent in the area for apartments similar to the installments you would have on a standard 15% mortgage. Of course, there is also the option to pay a higher advance, thus benefiting from a lower monthly installment and, depending on the bank, better interest rates. Also, depending on your income, the 30-year period may be reduced. Regarding interest, this cannot be guaranteed, it can change at any time and varies depending on several factors (from bank policy or BNR decisions to your client profile).
Although we did not take them into account in the table (not to complicate the calculations), the mortgage loan option still has some benefits compared to the rent option:
- Even if it is less at the beginning, the installment includes the partial repayment of mainly what is still your money. The real cost is only interest and it should be compared to the rent. This means that, in fact, the difference between the cost of the installment and the cost of rent is greater.
- You pay the installment for 30 years (or less), you can pay the rent for life.
- You have the option to pay in advance and reduce the loan period. There is no such concept for rent.
As you can see in the table and as you probably already knew, for the purchase by mortgage, you need the advance of 15%. If you choose the rent option, you do not have to pay this amount. But, to have a correct comparison, it would mean that, if you move in with rent, you can keep the advance money you have safely in a bank deposit or you will invest in government securities.
Therefore, let’s see what happens if we make a comparison from an investment point of view. If we take the example of the 2-room apartment in h4l HOLBAN, for an initial investment of almost €15,000, you have a gain (difference between rent and installment) of approximately €100 / month, so €1,200 / year. It means a yield of 8% / year. If you chose the rent option and keep the €15,000 in bank deposits or government securities, you would earn between 2% / year and 4.5% / year in lei or 0.5% / year and 2% / year in euro.
It turns out, quite clearly, that even from this perspective, moving into your own home has financial advantages. Basically, the money invested (the advance) produces a return from the first month (saved rent + real estate appreciation).
We hope you found the information in this article helpful. If you have decided that the mortgage purchase option is the most suitable for you and you are wondering what the next step is, we can help you. You can start with the article Apartment loan – concrete solutions.