Getting Maximum Value from Your Home Purchase - The Five Year Rule
Posted March 09, 2014


Purchasing a home that you only plan to live in for a short period of time could cost you a lot more money than you realize. A townhome or a small starter home may satisfy your immediate need, but renting for a while longer can save you money in the long run.

It’s estimated that most home payments don’t make a significant dent in the mortgage principal until around the fifth year. So if you purchase a home, sell it, and then buy another within a few years, you’ll start the cycle again with monthly payments made up of more interest than principal.

Because there are always closing costs when a house is purchased or sold, you will pay out another significant amount. If comparing a monthly mortgage payment to monthly rent, the mortgage option isn’t cost-effective until after the first five years.

One possible workaround would be to purchase a home on the lower end of what you can afford. This would enable you to pay a larger amount on your monthly mortgage, and as a result reduce your principal faster. So again, while choosing a home to buy, select a house that you will be comfortable in for a while so that you get the most value for money spent.

Posted By: Michelle Keaton-Barrow
March 09, 2014 09:52 PM




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