The Mathematics of Mortgages

Mortgage Math Breakdown

To rent or to buy, is the age-old ongoing question.  If we take the emotion out of the equation and choose to see this decision as purely about the numbers, then the choice becomes clear.

Condo:

If you are currently renting an apartment, then the condo market may be the place for you.  Maintenance-free living certainly does have its benefits. An average apartment in Red Deer is going for $950/ month.  In most cases, the heat, water, and waste are covered.

Rent                                      $950

Power                                       50

Insurance                                 25

Laundry                                    25

Total                                    $1050 

Purchase of $100,000 condo:

Mortgage payment               $462

Condo Fees                               270

Taxes                                            76

Power                                           50

Insurance                                100

(life, disability, home)

Total                                          $958

Keep in mind:

The property value will increase, and the mortgage balance will decrease. This means after just 5 years the condo owner has increased their net worth by $15,600 by choosing to spend the money they were already spending in a different way.

Townhouse:

Rent                                            $1100

Utilities                                           400

Insurance                                         40

Total                                           $1540

Purchase of $175,000 townhouse:

Mortgage                                   $810

Taxes                                           175

Insurances                                   200

Utilities                                        400

Home Maintenance                   100

Total                                         $1585

Given the property value increase and the mortgage principal decreasing, this homeowner has increased their net worth by $30,480.

House:

Rent                                            $1650

Utilities                                           500

Insurances                                       40

Total                                            $2200

Purchase of a $300,000 home:

Mortgage                              $1388

Taxes                                        250

Insurances                                250

Utilities                                    500

Home Maintenance                 150

Total                                       $2538

This person would see a net worth increase of $48,680 in just 5 years!! If they were willing to purchase a home with a legal suite renting for $800/month, they could have a lovely bank balance of $48,000 (less expenses) which invested at 6% return could generate an additional $7,859 in interest putting them at $104,539 in increased net worth in just 5 years paying for something they are already paying for.

None of these scenarios consider the first-time homebuyer initiative which would further decrease the monthly mortgage amount.

Condo               $33/month

Townhouse      $51/month

House               $86/month

We have looked at homeownership simply in terms of math and the math does not lie.  Call me today and let’s look at your numbers to see what we can do for you!