Home Finances

How to keep your biggest expense from becoming your biggest stressor.

Scott Kays

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You and your spouse are tired of paying rent, but you fear you'll never be able to save up enough to buy a house. Or you may already own a home but think it's time to move up (or down) in size. Still others of you may live in a home that is perfect and affordable but are contemplating a move to a new area and don't know what that may mean for you financially.

Whatever your living arrangements are, certainly some important questions regarding the purchase of a home have entered your marital discourse a time or two. And the topic of buying a house is often a hot-button for couples: the mix of the financial and emotional elements too often lead to a conversation catastrophe.

Even for seasoned homeowners, such basic questions such as "How much house can we afford?" or "Where can we get the best deal on a mortgage?" or even "Should we pay off our mortgage early?" can bring confusion and frustration to your lives if you don't know where to find the answers. A house is the largest purchase most people make during their marriage, so it is worth doing your homework to make the best possible decisions and avoid any potential conflict.

Why Buy

The financial benefits of owning your residence versus renting are so extensive that I almost always recommend the purchase of a home be one of a couple's top investment priorities.

First, there are tax advantages to owning your home. If you are like most people, you will borrow most of the money needed to buy your home and will make monthly mortgage payments to the lender over a period of either fifteen or thirty years. Each mortgage payment consists of interest plus some principle. Since the interest amount is based on the balance of your loan, and each payment reduces your loan balance, the interest portion of each successive payment decreases slightly while the principle portion grows.

The interest portion of your loan payments is generally tax-deductible, meaning that after tax savings are considered, you can afford a substantially larger mortgage payment than rent payment. For instance, if you are in a 30 percent federal tax bracket, a $1,000 mortgage payment will cost about the same after taxes as a $700 rent payment. Conversely, a mortgage payment will cost you less on an after-tax basis than a rent payment of an identical amount.

Second, owning your residence increases your net worth. The gap between your home's value and your loan balance is called equity. This gap grows and your equity builds as your home appreciates in value and as your loan balance declines with each monthly payment.

Third, your mortgage payments remain stable for the term of the loan, while rent payments increase each year. Let me illustrate this with a personal story. Shortly after graduating from college and living on starvation wages, I rented a tiny one-bedroom apartment for $315 per month. At the same time, my parents, living in a house they had purchased fifteen years earlier, paid only $187 per month for a two-thousand square foot house that sat on a one-acre lot. Somehow, this disparity did not seem fair but such is the advantage of investing in a home.

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Originally published in: Marriage Partnership, 2001, Spring

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