Rent vs own a house: a graphic analysis

There has been a long discussion of rent vs own a house.

I would like to analyze the home ownership in terms of home equity only.

When you own a house, you basically pay a monthly interest and accumulate some home equity over time. The following chart makes the following assumption.

1, Suppose the house is worth 200K with 0 down.

2, Interest rate is 6%.

3, Mortgage is for 30 years (360 months).

[Graph generated from my home mortgage calculator. All right reserved Huiting Zhuang.]

The blue line stands for the interest rate paid over time per month.

The purple line stands for the home equity that you accumulated per month.

The yellow line stands for the total home equity accumulated over time adjusted by divided by 100 so that it stays in the same graph.

So apparently, in the very beginning, even if you own a home, you actually own a very small chunk of the total value of your house.

What does mean?

If you do not plan to live in a place for long (say at least for 2 years), you actually do not own too much of your house. However, if you need to sell a house soon, you will have to pay some commission. Also, you also need to pay taxes on the house.

The total loss: (tax+commission+maintenance-your home equity) might be greater than (the total rent) you will be paying.

In other words, you are losing if you own the house for a short period of time. The exact break point will depend on appreciation or depreciation of your house. You need to talk to an economist or experienced realtor to make logic predictions.

This article is written in response to a friend who asks me if it is better to own a house rather than rent one. This analysis only talks about the money part. To make real decisions, you need to talk to a realtor or economist to make a real decision.