The Eternal Debate between Renting a House vs a Mortgage, Which One to Choose?

Looking at the latest developments related to house prices, the confusion between the home rental vs mortgage options has become an interesting conversation. Not a few remain firm with the mortgage option with considerations that are considered reasonable, while others with their choice to rent a house because it offers flexibility.

Then when compared, which one is the most ideal for you?

This interesting discussion will actually involve many essential and important considerations. Starting from the price of the house when in the context of rent or mortgage, the comfort offered, to the advantages and disadvantages of each option.

The Dilemma between Rent a House vs Mortgage

The dilemma that arises can actually be observed from five main points. Starting from initial costs and monthly expenses, asset ownership status, property and investment values, flexibility in life, and guarantees or protection for the place of residence.

From each of these points, the simple explanation is as follows.

1. Initial Fees and Monthly Expenses

The first consideration is related to financial factors. The dilemma of renting a house vs a mortgage arises because the calculation of initial costs and monthly expenses is constantly debated.

In fact, there are calculations that can be used as a reference for this matter, of course by considering various other factors.

2. Asset Ownership

The status of asset ownership is the next big consideration. Obviously, with a house rental you will not have the status of an asset in the form of property, but on the contrary with a mortgage.

These assets are a long-term consideration for many people, while the rest prioritize the flexibility to choose a place to live on a regular basis.

3. Property Value and Investment

Property values have never decreased. This is why many people make a house as an investment in the hope of making a profit in the future.

In the context of renting a house, the rent that needs to be paid will continue to increase over time, and this must also be a separate consideration.

4. Flexibility and Stability

There are groups of people who are comfortable with the flexibility of renting a house because they are not tied to a place to live, while others prioritize stability by living in the same residence for the long term.

This dilemma arises if a person does not yet know what is needed and what is convenient for him.

5. Residence Guarantee or Protection

Home insurance is usually reserved for homeowners, which means asset owners, to protect the home from various risks during use.

In the context of renting a house, you don't even need to think about this, and can focus on the property you have in it because the building of the house is the responsibility of the owner.

Estimated Home Rental Cost vs Mortgage, Which Makes More Sense?

Many simulations can be used, such as the ones in this section.

The scenario is that you have a capital of around IDR 150,000,000 with a target Type 45 house which costs IDR 1,000,000,000.

The increase in house prices is generally calculated to be around 5% per year. With this scenario, the estimated cost of renting a house and a mortgage that can be provided is as follows.

1. Scenario of Buying a House IDR 1,000,000,000

In the mortgage house purchase scheme, there is what is called VAT DTP or Government-Borne Value Added Tax. The VAT DTP is at 11%, so if the price of the house is IDR 1,000,000,000 then this cost can reach IDR 110,000,000. Pretty bad, isn't it?

The scheme for self-purchase is as follows:

Initial fee, with a 10% down payment of IDR 100,000,000
Coupled with BPHTB & Contract Fee around IDR 50,000,000
The rough calculation for 10 years totals IDR 1,036,000,000 taking into account fixed and floating installments
With the development of asset value over 10 years, the estimate is at IDR 1,620,000,000
The mortgage scheme used will make you have a debt of around IDR 680,000,000
Thus, the total net worth you have in the tenth year is in the range of IDR 1,620,000,000 - IDR 680,000,000

= Rp940,000,000

2. Scenario of Renting a House with a Value of IDR 1,000,000,000

In the context of renting a house with an equivalent value, the rental cost will be in a much more affordable figure. The scheme is as follows:

Rental fee per year, around IDR 45,000,000 to IDR 50,000,000
The cost of a house per month (electricity, water, internet, maintenance) is in the range of IDR 2,000,000 per month, multiplied by 12 months = IDR 24,000,000 per month
So the rough calculation that it has for the total cost of 10 years is:

(IDR 50,000,000 + IDR 24,000,000) x 10 years

= IDR 740,000,000

This home rental scheme does not give you a debt burden, but it also does not give you the net worth value of the house because it is not a property owned.

So with the description of these two schemes, you have a pretty clear picture of how the expenses required for house rent vs mortgage assuming the value of the house is IDR 1,000,000,000 and the tempo is 10 years.

Advantages and Disadvantages of Renting a House vs a Mortgage

Each option has its advantages and disadvantages. An understanding of the plus and minus sides of these two schemes is necessary, so you can tailor it to your conditions.

1. Advantages and Disadvantages of Renting a House

Pros:

The costs incurred are relatively smaller because there is no need for a down payment or expenses at the beginning. On a long-term contract scheme, there are most likely additional deductions.
Flexible, because when you start to get bored you can look for a house or other residence to live in to get refreshment and new enthusiasm.
It is more economical because you don't have to think about renovation costs, maintenance costs, or other costs that arise when making a purchase.

Flaws:

You must be used to moving from one place to another, understand the packing method, and have a lot of energy and time to carry out the moving process.
Not having assets because the house you live in is not yours.
Rented houses may need repair costs that are not small during the inhabitation if there is damage due to their own fault.
Cannot use home insurance because the residence is not in its own ownership status.

2. Advantages and Disadvantages of Mortgages

Pros:

The monthly installment fee can be adjusted according to the ability to pay, the payment scheme can also be adjusted.
Long-term ownership of assets for later use.
Comfort and stability are guaranteed because the house occupied is your own so it is free to use.
Can provide the right home insurance for housing in anticipation of what you want to do to the house you own.

Flaws:

There are considerable initial costs, ranging from down payment, letter management and administration, and related costs that must be paid in order to buy a house.
The cost of repairs must be fully borne by you as the owner.

Then Which One is Better for You?

The explanation given is clearly intended so that you can have an idea of which is more appropriate between renting a house vs a mortgage.

If the question that arises later is which is better, then perhaps this is shifted a little to which is more precise.

1. Choose to Rent a House If...

If you are still in a condition or want to have a looser monthly cash flow, then renting a house will be a better option.

In addition, those of you who want to be free from large maintenance costs can choose this option. Renting a house also provides flexibility when you need to move places, and love trying new environments.

You also won't have a long-term debt burden if you choose this option.

However, you must pay attention to the content of the contract agreement if you choose the house rental option. There are also provisions on damage and maintenance, then extra costs outside of rent, schemes and calculations of rent increases, as well as the physical condition and facilities of the house.

2. Choose a mortgage if...

A mortgage is the right option if you want to have certainty of residence. Then you will also have complete freedom for renovations and decorations as long as you have them.

At the same time, mortgages also allow you to train yourself to be financially disciplined. This option also allows you to have an inheritance for your children and grandchildren in the future.

However, several things must also be considered. First, about the ability to pay and the debt ratio that must be carefully calculated, then the large initial cost, the type of interest rate chosen, the realistic tenor duration, the developer's track record, and the provisions for penalties and accelerated repayment.

The discussion about renting a house vs a mortgage may never end, because each person has different financial and life conditions. In general, the description in this article can hopefully help you to see with a larger scope, so that you can make better decisions.

Of course, if the option you choose is a mortgage, or maybe you already have a house, we recommend you to use Home Insurance from AXA Insurance Indonesia, namely SmartHome Insurance. This insurance can provide optimal benefits for risks that threaten your home, so you can feel safer and more comfortable while living in the residence. This insurance can also be provided to rented houses, so that the protection obtained is more optimal.

The option of renting a house vs a mortgage must certainly be considered well. But whatever your choice, AXA Insurance Indonesia is ready to provide maximum protection for the assets you have so that you avoid major losses if something unwanted happens.

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