Rent or buy a home?

Published in El Pais, 27 March 2021.

Have you ever heard them say: I prefer to pay the bank then to live in rent. Or with a home loan, you can buy a house, rent it and the bank will pay itself.

We know that for many of us it is difficult to save for a house in cash, and that is why the home loan is a great financial alternative, since we do not need to have all the money and it gives us a term of up to 25 years to pay it off. It also gives us an emotional component because it gives us the feeling that we already have something of ours, when in reality it belongs to the Bank until it is paid in full.

Did you know that you can pay up to more than 2 times the value of your property? Next, I will perform a simulation of a bank loan of 35 thousand dollars that is an equivalent to Bolivianos 243,600 (exchange rate 6.96) for a term of 25 years with a 5.5% rate, which is supposedly a low interest rate and for social housing.

Quota	Bolivianos	Dollars
Monthly	1.910	274
Yearly	22.920	3.393
Total paid	573.000	82.317
Interests	330.000	47.327

This is something that we must consider when buying a property with bank credit. In addition, it should be considered that the bank asks for its own contribution of 15 to 20%, and that additional costs must be paid in transfer tax and documents that amount to almost US $ 2000 and are for the buyer.

With this we do not mean that it is better to live in rent, because clearly in the long term it is wasted money. But it is necessary to indicate that it is essential to organize financially, through a budget, creating savings habits in order to be able to give a greater contribution and avoid paying high monthly interests and amortizations.

If we organize and plan, we can take advantage and take better advantage of this option to have a home of our own, although this requires effort and perseverance. Which reminds me of a phrase by Robert Kiyosaki “The most dangerous trap for humans is the dungeon of comfort.”