Minimize the time of being a tenant

In Finland, it is common that young people tend to move away from their parents’ houses relatively young. When the apple of mom and dad’s eyes graduates from high school, commonly the  search for his or her first rental accommodation begins. However, it would be very reasonable to minimize the time of living in a rental accommodation. Avoid it totally, if possible.

If you didn’t need to live in a rented accommodation at all, it would be great. Earn the
money you need to get a mortgage and purchase  a home of your own. I reckon it would be the most sensible choice, at least moneywise. Why would you like to pay significant sums of money monthly to some stranger just to be able to live in a rented apartment?

Of course, in most cases, a person becomes a tenant at some part of  his or her life for different reasons. That’s just fine. But the time of being a tenant should be minimized. By renting, you actually benefit your landlord, not yourself.  In the long term, renting becomes a much more expensive form of living than living in a place your own.

Buying an own home as soon as possible should truly be the goal. In a rented apartment making a payment gives one the right to live there. The instalment of the mortgage might be same size as the rent, but you’ll have the value of the house. After the time, when the whole loan has been paid, you own the whole apartment. By paying rent you’ll never be the owner. At the moment the mortgages are also very accessible and interests low which should be taken advantage of.

There are also some other significant factors why you should buy a home instead of renting it. For instance, there is a major tax benefit. A house is like a dividend, it generates a huge rental value each month. If you own a house, you are like renting it to yourself. Naturally you don’t need to pay tax for renting the house to yourself. Owning a house is also psychologically rewarding. In your own house you have the freedom to do almost anything you like, renovating for example. (Brynjolfsson 2016.)

Naturally buying a home is not always better than living in a rented accommodation. The time value of money should be taken into account in different economic situations. When the interest rates are low and rent terms short, the time value of money is not an important factor. When the interest rates are high and rent terms long, noticing the time value of money is crucial. In that economic situation, buying might be a lot worse deal compared to renting. (Wang 2015, 355.)
Being a student and saving money to buy an own home might sound pretty hard. Gaining just the study grant won’t allow a student too much extra money. Working  along the studies is a good  option to get some extra money, part of which could be saved for an own home.  Today there are challenges to find a job and get hired in the first place. Let alone if a student has even time or energy to work along studies.

In Finland there is such a great invention as ASP loan which is designed for young first-time home-buyers. A deposit of a minimum 150 euros must be made in at least eight fiscal quarters. The home-buyers are committed to save a minimum of 10 per cent of the price of the house as a down payment for their first home. When they reach the target, the bank is committed to granting them a mortgage. In ASP, you don’t have to pay tax for the interest paid on the savings and the state provides a subsidy for the interest charged on the loan. (Financial Supervisory Authority 2015.)

So what are you waiting for? Start saving money into an ASP account and aim to buy your first own home as quickly as you can. Always remember that every cent you pay rent is just divided into landlord’s profit and tax. The more you have paid the mortgage, the more you own the house. By paying the instalments of the loan you are benefiting yourself.

 

 

Sources:

Brynjolfsson, Erik 2016. An MIT economist explains the 3 biggest reasons buying a home is better than renting. Business Insider. Updated 18 February 2016. http://www.businessinsider.com/mit-professor-explains-why-its-better-to-buy-a-home-instead-of-rent-2016-2?IR=T. Viewed 26 February 2016.

Financial Supervisory Authority 2015. Savings account for first home purchasers (ASP account). Updated 24 September 2015. http://www.fin-fsa.fi/en/Financial_customer/Financial_products/Deposits/ASP/Pages/Default.aspx. Viewed 26 February 2016.

Wang, Guan Jun 2015. Revisit Buy Versus Lease/Rent Analysis. International Advances In Economic Research 21 (3), 355. Business Source Elite, EBSCOhost. Viewed 28 February 2016.

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