Renting vs. owning a home? There’s no easy answer to which is better, but we break it down to help you make a decision on rent vs. buy a house.
Once upon a time, buying a home in Canada was simply a milestone in the life of the average Canadian. But times have changed: inventory is low, prices are high and sales have slumped, making homeownership difficult and calling the investment potential of real estate into question. Simultaneously, the surge of remote work situations and the shift to a global economy have made the portability of renting an attractive choice. It’s left many Canadians with the rent vs. buy debate.
With so many variables — personal and financial — in play, whether to rent or buy may well come down to your financial circumstances, future goals, and personality. This article outlines some of the considerations when deciding to rent or buy a home.
There are many reasons why homeownership has serious appeal (not dealing with nosy landlords is definitely one of them). Here are some of the common benefits of owning your own home:
Homeownership isn’t all unicorns and rainbows. Here are some of the downsides to homeownership that may sway you towards renting:
It may not be a popular opinion, but renting a home has some perks worth considering. Here are the pros of renting a home:
Let’s be honest: there are some unappetizing things about renting. Here are some not-so-great aspects of being a renter:
Before you make the leap from renting to owning, it’s wise to dig in and analyze your current financial situation and short-to-medium-term goals. We’ll deal with specific financial considerations later, but first, survey your personal situation and readiness for homeownership.
The first (and most important) thing to do is to compare the cost of rent to mortgage payments in your neighbourhood. The housing market will exert a significant influence on your decision-making. In “hot” housing markets like Vancouver and Toronto, the cost of a mortgage may be significantly higher than the amount you would pay in rent. As a general rule, if you’re paying more than $3,000 per month in rent, you can probably do better on a mortgage.
The “40% rule” says you should be able to meet your housing costs (principal and interest, taxes, and heat), as well as your other registered debts (such as car loans and credit cards), with no more than 40 percent of your gross income. Not only is this a handy guideline for your personal planning, but it’s also a measure applied by many lenders. Relatedly, you should be able to cover monthly costs such as your housing, food, and transportation (known as “fixed costs”) with 50% to 60% of your net monthly income. Any more than that, and you’re likely to struggle.
Without stable employment, you’ll have trouble convincing a lender to give you a mortgage, but more importantly, you may run into problems meeting your obligations. Do a realistic survey of your employment picture before making a decision.
With all the talk of investments and equity, it can be easy to lose sight of some basic truths. As a general rule, the longer you live in a place, the better the investment. This is partly because there are numerous costs associated with the transfer of real estate.
Homeownership is a big step. It means you’re saying “yes” to forking over a chunk of change for property taxes, home insurance, maintenance, utilities, and a mortgage. Are you really ready for it?
When to rent
When to buy
If you’re convinced that homeownership is for you, the next step is taking a detailed survey of the real financial obligations of homeownership. Use these guidelines to estimate the real financial responsibilities of buying a home.
If you have the resources to buy, homeownership is more than likely a wise investment. Every time you make a mortgage payment, you are essentially paying down the principal and taking a step towards owning a piece of property that will appreciate over time. Think of your mortgage payment as an investment or a savings strategy: if you sell your house down the road, you’ll get back the money you’ve paid out and likely turn a profit. If you stay put long enough, this can grow into a very healthy nest egg.
When it comes to renting vs. buying a house, neither is better than the other. There’s no clear-cut answer to this age-old debate, and it will require some soul-searching and number-crunching on your part. Your current personal and financial situation, as well as your goals and location, will largely determine what’s right for you. Use our rent vs. buy calculator to see which option makes fiscal sense.
If you decide to take the plunge into homeownership, remember to shop around for the best mortgage lender and get the lowest mortgage interest rate possible. A bit of research could save you hundreds of thousands of dollars in the long run. From our research on the best mortgage interest rates in Canada, consider one of the best online mortgage lenders in Canada. They offer some very competitive rates, and you can do the entire application online in mere minutes.
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