In full Coronavirus emergency, 2021 has begun: what better time than to make important life decisions? If you too, like many Italian families, are wondering what is better to choose between mortgage or rent, here in this guide we will try to help you dissolve all your doubts.
Before examining the matter carefully, however, we want to immediately break down a taboo as old as the world. Buying a house is undoubtedly a very important choice, but do you want to know a curiosity that will make you jump?
In the rest of the European countries, the overwhelming attachment to buying a house, as we have well-rooted it in Italy, does not exist as a need or global mental concept.
In countries such as Belgium or England, families live their entire lives in non-owned houses without ever asking themselves the problem of not having owned properties.
In Italy, on the other hand, partly for cultural heritage, partly for mental conception, being able to buy real estate is still seen today as a goal that determines a fundamental passage for a man’s life.
Here is that sometimes, the historical culture affects our decisions and not a little. Mortgage or rent, therefore, are you sure that one choice is an improvement over the other and vice versa?
My father would say that buying a house is a sacrifice that must be made sooner or later: probably, yours will think the same way. But do you know what has changed and what is rapidly still changing? All.
Society, the real estate market itself, the new generations, the lifestyle. Everything around you is constantly evolving and you will have to find your own dimension in this new and hectic world.
Today, we will help you pull the strings of this cumbersome decision and we are sure that at the end of the reading, you will have clearer parameters on which to weigh the final choice.
Mortgage or rent: first analysis necessary
Personal and subjective life considerations
To choose whether to face the commitment of a mortgage or opt for a lease, it will inevitably be necessary to start from analyzes relating to personal living conditions related to work, life projects, goals, but above all to economic availability.
Before taking advice from experts in the sector, analyzing the various tax advantages and the relative possibilities that you can draw on, the parameters you can rely on are strictly personal and subjective.
You will probably have to go through the crossroads between rent and mortgage only once in your entire life: do you want to choose the wrong direction?
Now let’s analyze what personal parameters could be able to tip the scales towards one choice or the other.
Are you ready? Let’s begin!
- Job stability: first of all, clearly, there is the working condition to be evaluated. Do you have a stable contract? Are you a freelancer or self-employed? Each variable can have a greater impact on one direction or the other.
- Sentimental aspect: Are you thinking of facing this choice alone? Do you have a partner? Would the future home belong to both? Do you think you will have children?
- Geo Transfers: Do you lead a lifestyle that could lead you and your future family to change cities often?
- Economic liquidity: do you have an amount of economic liquidity aside? … Certainly not to put your savings into your hands, but only to show you an aspect that will be essential for the purchase.
Know that each of the aforementioned ideas could develop and adapt to your real-life condition, to make you then have a complete overview of the pros and cons related to the mortgage and rent.
The first useful advice we would like to give you in this regard is precisely this: put all the answers to the ideas in the previous list in black and white, and you will see that a first analysis will take shape automatically.
You did and now are you waiting to read the next pros and cons related to tax breaks, taxes, and income?
Let’s start by dividing the “pros” relating to taking out a mortgage in Italy, based on the current laws and the state of things to date, of course.
Take out a mortgage today: here are all the advantages
- Interest at historic lows: after the severe economic crisis that hit the real estate market, banks were forced to “turn off the taps” relating to the disbursement of large sums of money. Thus, in the years immediately following the economic crisis and recession, obtaining a loan was a luxury reserved for a select few. Today, however, thanks to the slight upturn in the real estate market, it is easier to access mortgages with interest rates at historic lows. What does it mean? It means that paradoxically, the installments calculated for the monthly mortgage payment will be the lowest ever. The concept is best explained by Il Sole 24 Ore, who created a generic overview of the type of interest rates and solutions to choose from.
- Future real estate income: once you become a homeowner, you can decide to resell (possibly at a higher price) or to rent that property, thus obtaining a single or monthly income from it.
- Tax relief: if particular parameters are respected, a tax deduction equal to 19% on the interest expense of the first home loan can be requested, for a maximum ceiling set at 4,000 euros and consequently up to 760 euros in personal income tax savings.
- Future inheritance: in this case, if you believe you want to leave real estate assets to your heirs, the choice of buying a home is almost a moral obligation.
These are the main reasons for choosing a house as a housing solution to buy through a mortgage, which remains your property and which you can then use in the future as you see fit.
Instead, let’s now discover the perhaps unexpected or too often not considered advantages, concerning the choice of living in rent.
Living for rent today: here are all the advantages
- Mobility: we choose to highlight as the first element of the benefits that can be drawn from this choice, mobility, understood as geographical transfer, change of neighborhood, choice of a larger or simply different house. These are all needs that could affect you and your family over the years.
- Maintenance: living in a rented house means not worrying (or at least not totally) about the problems dedicated to maintenance, except for the ordinary one, of the apartment or the building.
- Little economic investment: the cost to deal with for lease have minimal economic investment; once the deposit has been paid, it will not be necessary to have a large sum aside in liquidity to be able to choose the rent as a housing solution;
- Property taxes: since you do not have any property registered, you will not have to worry about paying taxes on the house in which you live and which you have chosen to rent.
- Tax deductions: also, in this case, you can take advantage of tax deductions based on the type of contract stipulated: the deduction can reach 495 euros, 300 for contracts with an agreed fee, 991.60 if the tenant is aged between the 20s and 30s.
Have these advantages opened up a range of options for you that you may not have thought of before? Also, in this case, we preferred to focus on the main ideas that could be evaluated as positive by choosing to live in rent.
Mortgage or rent, then? Wait up! We have not yet analyzed the possible “cons” of both decisions
In reality, we would like to specify that more than talking about disadvantages, we are dealing only with conditions relating to the personal status of each one, as we tried to explain at the beginning of this guide.
In any case, even in this case, we have decided to draw up a list made up of ideas that we hope will help you.
Possible drawbacks related to choosing a mortgage:
- Fixed economic commitment for years and years: as we believe it is easy to understand, having the weight of the installment to pay the mortgage, may not always be easy in the course of life, but it is necessary to calculate that there will be moments and moments. What is certain is that you will have to continue to pay the installment every month until the debt is fully paid off.
- Housing needs that change: we anticipated this before, talking about the benefits related to one choice rather than the other. During the historical journey of a family, one can never know which and how many life needs could change over the years. For this reason, the mortgage may be binding for the purpose of a sudden need for change.
Possible disadvantages due to the choice of renting as a housing solution:
- Needs of the homeowner: it could happen that the homeowner has personal needs that lead him not to renew the lease. In this case, you would find yourself having to look for another solution for you and your family again, resulting in a move.
- Do not have a future inheritance: if you want to leave real estate assets to your future heirs, by doing so, you will not be able to meet this need.
- Not being able to make changes at home: the aspect linked to possible changes to be made at home should not be underestimated. In renting, it will be very difficult to have decision-making power.
Mortgage or rent in Italy: what if the choice was linked to the geographical area?
Another aspect we haven’t talked about yet is that linked to geographical differences. It happens, in fact, that in Italy the difference between one region and another is still very much felt, in terms of rents and prices relating to real estate sales.
How does this data relate to the choice linked to the mortgage or the rent? It’s very simple.
In Italy there are extremely different geographical areas: in some regions of our country, it is much cheaper to buy a house, while in others it is better to choose a rental solution. This happens because it is the entire Italian economy that is not homogeneous, so the real estate market and the related sales undergo significant changes.
This evaluation parameter will also help you to better understand which is the smartest investment to undertake based on the reference real estate market in your area.
What if the choice is not mandatory? The rent with redemption formula
It is good that you know that sometimes, the choice of rent does not necessarily affect the possibility of buying the property, but leaves you this opportunity in the future, moreover without the need to take out a mortgage: we are talking about the particular formula of rent with redemption.
By opting for rent with redemption, the parties enter into a lease agreement with a future sale agreement, in which the price for the purchase of the property is “blocked” and therefore is known to both from the beginning. From then on, the rent paid will not be lost by the tenant as is the case in all other types of rental contracts but will be calculated as advances on the final purchase price. Years later, when the tenant himself is ready for the purchase, he will have to pay only the final balance, deducting all the rents already paid, in addition to any initial advance already paid if this is foreseen.
Sometimes, some properties are proposed (often by the builder) directly with this solution to potential tenants – and future buyers – but the particularity of this type of contract is that it can be freely agreed between the owner and the tenant/buyer, which can be also two private individuals.
If you are carrying out the operation through a real estate agent, you can ask if the owner is available to stipulate this particular type of contract, the agency itself will take care of the rest. Otherwise, if you are acting “between private individuals”, you can agree between the parties for the rent with redemption and then ask the Notary to adapt to this solution, alternatively, you can opt for the advice of a technician or a legal to be followed on the aspects of a bureaucratic nature.
Remember that there are different solutions of new types of contracts, such as rent with redemption, which you should take into account before making one of the most important choices of your life, that is to buy a property.
Choose the mortgage or the rent: now it’s your turn
In the course of this article, we wanted to give a generic overview of the aspects related to the choice of living in rent or taking out the mortgage to buy a new home.
Of course, since the introduction, we wanted to specify how much this choice must be absolutely personal and not conditioned at all.
It is good, however, that you are made aware of the consequences that derive from one choice rather than the other. There will not be a common and equal opinion for all on the matter.
The right decision will be the one that adapts more easily and therefore with less sacrifice and effort to your current and real-life condition.
It is also good to always get information from concrete and authoritative sources such as a licensed real estate agent, not letting yourself be taken by the heat of the moment and then risking to find yourself in trouble.
Finally, whether you choose a rental solution or a mortgage, always remember that your home must be the place where you will need to feel safe and sheltered: it is not only made of walls and a roof over your head, your home. it is much more.