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Renting verus Buying |
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Scotiabank Mortgage Update
To rent or not to rent- that is the question!
"The Truth About Mortgages" authors, Alberta Cefis and Roberta Hague offer some enlightening information to those currently renting and thinking about purchasing a home. "For many Canadians, reaching the decision to buy or rent a home is not straightforward. Each option has its advantages, depending on where you are in life. |
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If you rent, you are not tied to one place. It's much easier to pull up stakes and move. Generally, you are not responsible for the costs associated with maintaining a rental home, and you don't have to worry about property tax and the other costs that come with homeownership. But as you know now, owing a home not only ensures more security and lends a sense of pride, it can have considerable advantages as an investment. Bankers have often been heard saying that renting is "just a home you're borrowing from someone else." You get to use that house or apartment, but it's never really yours, and you avoid adding to or fixing up the place much since you can't take the built- in book shelves or new kitchen with you. But many Canadians continue to rent because they believe that they can't afford to buy. But in today's market, with more affordable housing and lower interest rates, the gap between the cost associated with renting or buying a home may be closer than you think. |
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Take a look at the following chart to see the potential difference between renting and the carrying cost of a mortgage, depending on the size of your down payment: |
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If your monthly rent is: |
You can afford a mortgage (at 6%, with a 25- year amortization)of: |
Which, with a 25% down payment, means a home valued approximately at: |
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$ 500 |
$ 78,000 |
$ 104,000 |
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$ 700 |
$ 109,000 |
$ 145,000 |
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$ 1000 |
$ 156,000 |
$ 208,000 |
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$ 1500 |
$ 234,000 |
$ 312,000 |
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$ 2000 |
$ 313,000 |
$ 417,000 | |
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It’s not just about the mortgage payment… |
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There is much more to consider than just how rent payments compare with mortgages payments. That is simply the starting point to assess affordability. The model to assess the economic trade- off of renting versus owning is much more complex: it needs to take into account all the costs of homeownership – property taxes, maintenances costs, utility bills- and assess these costs against the opportunity to invest your cash and generate a return on the investment. That said, all that cash laid out over the years in support of homeownership has to be weighed against the tax- free growth in value of the equity in your home as real estate values rise, not to mention the personal satisfaction and security that comes with homeownership. No matter how many different ways we run the numbers through different models, in almost every single scenario, you will be financially better off after 25 years of homeownership, compared to 25 years of renting. There are only a few situations that favor renting over homeownership. They involve either very high interest rates and declining real estate values, or low- rents, usually in a rent- controlled environment, and surging real estate prices. And, of course, if you’re planning to move frequently, then renting is a preferred alternative. Ultimately, though, if you’re looking at the long term, you can be confident that homeownership is a better investment than renting. Even if you think you’ll just break even on your investment in a home versus investment in the equity markets, one of the most compelling aspects of homeownership is the knowledge that every monthly mortgage payment you make brings you closer to owning the home outright, at which point monthly payments stop. Rent never stops, and it always increases. So homeownership starts to seem even more attractive when you consider what your level of income will be in retirement years. |
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Your Mortgage Development Manager |
David Foster AMP
Collingwood & Wasaga Beach Area
Cell (705) 441- 2211
Toll Free 1-866-MTG-DAVE
Fax (705) 422- 1230
david.foster@scotiabank.com
www.scotiabank.com |
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