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Buying a condo at 4% interest rates could be better than renting…

    Lets talk about the numbers.  Lets chose some round numbers to make it easier to see.  Lets look at borrowing $200,000.

      Principal and Interest  Your payment of just interest and principle would be $954.83 per month.  In the beginning you are paying $288.17 towards your principal.  This is your equity that builds up much quicker when rates are low.  After two years you would have $7187.58 in equity.

    The 24th month you would be paying down the equity at $311.08 per month. The amount you pay in principal increases monthly.  The equity is yours to keep. 

      Tax Saving as interest rates are deductible   If you are in the 25% bracket you will deduct $22,916 of interest in the first two years.  The average saving over this period is $5729 or $238.71 per month.  This is an out of pocket saving from Uncle Same.  This saving goes down over time but paying down the principal goes up. Live in your condo for two years and you never pay it back. 

    So far the 954.83 minus the principal payments and tax savings gives you a much lower number of  $427.95.  Almost sounds too good to be true.  It is as you do have condo fees, repairs, Interior insurance and PMI. 

     Expenses have to count.   A higher than normal condo fee for this price unit is about $300 per month. Insurance is about $50 per month for your contents.  You may pay this anyway if you are renting.  Not everyone needs to pay PMI.  Only those that do not have 20% down will have to pay this.  Once you have 20% equity this can go away. 

      Adding the $300 plus the $50 to the 427.95 gives you $777.95 per month without the PMI.  The PMI will vary depending on your down payment.  Lets say the number is $150 per month.  Your  number comes back to $927.95.   This does not include your closing costs or taxes.

    Taxes and Closing costs- Your closing cost are a one time fee and will be less than 2% and cover some of your future cost.  Taxes are going to run about 14.5 mills in New Orleans.  So figure your taxes will be about $150 per month with your homestead exemption of 75k. Adding this to the other cost you get to about $1075 per month. It may be a little more or less but compare it to $1300-$1500 in rent that you would be renting for.

     Appreciation and Sweat Equity will not be taken into account at this time.   Buying right may get you some instant equity as well.  Timing can save you money as well.  Having an experienced agent can save you more that  knows the markets.

 

Buy or Rent a New Orleans Condo

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Eric Bouler Realtor
Gardner Realtors
Metairie - New Orleans, La. USA