Renting vs. Buying


With the talk of rising interest rates on mortgages, some people are starting to question whether or not it really is a better idea to buy your own home rather than continue renting. Realistically, if you weigh all the pros and cons (not just financial ones, either), you might find that buying a home is still in your best interest.

Pay off your mortgage, or theirs?

Often, the monthly rent of an apartment is cheaper than the monthly payment of a mortgage, but this is because the price of rent in the rental market takes a while to catch up to the housing market. While prices of homes generally increase steadily, rent will generally jump once a year – up to 30 or 40 percent – which is generally quite a shock to renters. Contrarily, once you’ve committed to a mortgage term, your payments will be locked in at that amount for the length of the term. Not to mention that your mortgage payments will eventually stop once you’ve payed off your mortgage. If you were to continue renting for years, you’d be in the same place in 25 years as you are today – paying a certain amount per month to your landlord. And guess where that rent goes…to pay off your landlord’s mortgage on the place you’re living! Wouldn’t you rather pay off your own mortgage than someone else’s?

There are other financial benefits to owning rather than renting. There is the building of equity in your home – the more you pay down on your mortgage, the more of your home you actually own free and clear. The more equity you have in a property, the more potential to receive a nice chunk of change if and when you sell your home. You’re building assets (kind of like a forced savings plan). There are more options in the future, too – you can get even bigger tax breaks when you use the equity you’ve built in your home to invest! (Ask us about the Smith Manoeuvre!) So really, overall, you’re putting yourself in a much rosier financial position by purchasing your own home.

Control your own destiny!

The benefits to owning your own home don’t stop at the financial payoffs, either. With the amazing amount of condominium conversions that are going on right now, rental properties are becoming few and far between. Many landlords are now wanting to convert their apartments to condos, and this means that they’ll be telling their tenants that they have to move. When you own your own home, you are your own landlord, and you decide when you move. No more scramble to find a new place to live in a rental housing market that has a vacancy rate of less than 1.5%! Another benefit of being your own landlord is that you can decorate however you want, even if that includes painting the walls, installing new lighting fixtures, or doing a full fledged home makeover. Essentially, owning your own home lets you avoid the headaches that can sometimes arise when you rent from someone else.

More affordable than you think!

Today, it’s easier than ever to get financing for your own home as well. The Canadian government has a program for first time home buyers called the Home Buyers’ Plan, where they can withdraw up to $20,000 of RRSPs to put as a down payment on their home (you can read more about the home Buyer’s Plan here). Mortgage lenders have also taken steps to make it easier for first time home buyers to purchase a home. If your credit is strong enough, you can qualify for 100% financing (or a mortgage where you don’t have to put any money in the property as a down payment). Also, the introduction of 30, 35, and even 40 year amortization periods – compared to the classic 25 year amortization – makes it easier to afford mortgage payments on homes that are more expensive, which is a blessing in the housing market today, where some home prices can be fairly high.

If you’re interested in exploring further whether buying a home (as opposed to renting) is the best thing for you, please contact First Foundation and arrange a meeting to discuss your options.