Why Mortgage Rates, Tax Brackets and Timing Matters in the Rent vs. Buy Debate. Lifestyle of Long Beach and Real Estate.

Why Mortgage Rates, Tax Brackets and Timing Matters in the Rent vs. Buy Debate

Lifestyles of Long Beach & Real Estate

Lifestyles of Long Beach and Real Estate

LifestylesOfLongBeach.com 562-533-4003
Real Estate in Long Beach

But what if you can’t get the best mortgage rate, don’t itemize your tax deductions or stay in your home for less than seven years? Each of those raises the cost of homeownership, so buying wouldn’t be quite as good of a deal relative to renting. Here’s why each matters:

  • The best mortgage rates are available for people with the best credit scores – and a not-so-hot credit score could make your mortgage a full percentage point higher, which translates to at least a 10% difference in your monthly mortgage payment.
  • Itemizing your tax deductions lets you subtract your mortgage interest and property tax payments from your pre-tax income, which lowers your tax burden especially if you’re in a higher tax bracket. How much does not itemizing raise the cost of homeownership? It depends on your tax bracket and the amount of mortgage interest and property taxes you would deduct.
  • Selling a home in less than seven years after buying it means that you’re spreading your buying and selling closing costs overfewer years – making the average monthly cost of homeownership higher.

To see how your mortgage rate, tax bracket and time horizon affect the cost of renting versus buying, let’s look at several scenarios for a few large metros:


New York




3.5% mortgage, 25% tax bracket, stay 7 years (baseline)





4.5% mortgage *





Not itemizing tax deductions *





Stay 5 years *





4.5% mortgage, not itemizing, AND 5 years





* For these scenarios, the factors not mentioned are the same as the baseline.

Take Los Angeles, for instance. The top row shows that if you can (1) get a 3.5% mortgage, (2) are in the 25% tax bracket and itemize your deductions, and (3) stay 7 years, it’s 32% cheaper to buy than to rent.

Change any one of those scenarios, and buying is still cheaper than renting but less so:

  •  With a 4.5% mortgage instead of a 3.5% mortgage, buying drops from 32% cheaper than renting to 24% cheaper.
  • Failing to itemize tax deductions drops buying from being 32% cheaper to21% cheaper.

  • Staying 5 years instead of 7 makes buying 22% cheaper.

  • But all three – the 4.5% mortgage, not itemizing, and staying only 5 years – makes buying just 1% cheaper than renting – as the bottom row shows.

In New York, these same differences make buying 3% MORE expensive than renting instead of 31% cheaper. In fact, with a 4.5% mortgage, not itemizing and staying only 5 years, buying is more expensive than renting in Honolulu(by 13%), San Francisco (by 10%), and San Jose (by 4%), too.

In the other 96 of the 100 largest metros, though, buying is still cheaper than renting. In Atlanta, for instance, where buying is 57% cheaper than renting in the best of circumstances (3.5% mortgage, itemizing, and staying 7 years), buying remains 40% cheaper even with a 4.5% mortgage, not itemizing, and staying only 5 years. In fact, today’s low mortgage rates make it financially better to buy even if you only stay put for 3 years in many metros. But buying a home also involves a lot of time, emotional energy and financial risk, so we can’t really recommend buying a home that you plan to live in for just 3 years even if the financial calculation is in favor of buying. Money isn’t everything.

Jed Kolko, Chief Economist

As always if you are looking to Buy or Sell your home… please contact our Team of Professionals today. We can help guide you through the process and help you reach your goals today.

Lifestyles of Long Beach and Real Estate.com 562-533-4003
LifestylesOfLongBeach.com , We are a Team of Realtors that work and live in Long Beach. The Ricardo The Realtor Team will make your real estate goals a reality. Call us today.

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About Ricardo The Realtor

"For all of your Real Estate needs & more, call Ricardo the Realtor." Long Beach Real Estate Agent Top Team, Ricardo The Realtor. By having multiple professionals in our group we are able to always be there for you when you need us. Our TEAM of Realtor's outperform the individual agent. Selling your home? We utilize proven marketing techniques to obtain you the highest & best offer for your home. Gone are the days of placing a sign in your lawn, ad in the local newspaper & inputting the info into the MLS. We use todays technology- via customized online marketing, our very own mobile app to get your home the exposure it requires to get you the best price. We market your home not only locally but world wide on our site that is translated over 19 languages. We can show you how our tech savvy approach will make a world of difference when we sell your home. Marketing at a much higher level is what we specialize in. Buying your home? Driving around looking at For Sale signs is NOT the way to buy a home & allow us to tell you why. The "Listing Agent" already has a fiduciary duty to his client - The Seller. That agent has to get the highest price for their clients home. As your Buyer Realtor Team we look out for you, the Buyer. We are in your corner making sure your interests are 1st. Our Real Estate Agents follow a proven strategy that works. Your Top Long Beach Real Estate Agent Team is committed to providing you with the dedication to detail & client service you deserve. For all of your Real Estate needs & more. Call Ricardo The Realtor. If you, your family, your friends,co-workers and neighbors are looking to buy or sell your home please call us today 562.533.4003 for all of your real estate needs. "Our TEAM always outperforms an individual."

Posted on September 18, 2012, in Uncategorized and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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