Are you dreaming of the day when you will have your own place? Is that day almost here? If you are getting ready to leave home – or if your son or daughter is – you may be wondering: is it better to rent or buy? It’s an interesting question, especially if you live in a place where rentals may be much lower than home prices.
This rent vs buy calculator will help you do the math. It will tell you if you’d be better off buying or renting – and how many years you would have to own your home before you come out ahead.
But you need to look at more than the cost of rent or a mortgage payment to know for sure. There are a number of other factors to consider. Here’s a quick list of things to think about before you decide.
Reasons you may want to rent:
- You are not responsible for the maintenance. You don’t have to cut grass or shovel snow. But you still have to clean.
- You simply call the property manager if something goes wrong. But you do have to change the light bulbs.
- Your total monthly costs may be lower. But you still need to do the math.
- You won’t have any major maintenance costs to pay. But you should budget for small monthly costs, based on the size and type of place you are renting.
- Many rental units are available in prime areas, where it might be too costly to buy.
- Also take into account the cost of commuting to work. Often rental properties are more central for jobs, amenities and transit than homes in suburban communities and thus would save you money and time.
- You don’t have the same worries if you go on vacation. It’s not your property.
- You can move almost whenever you want.
Reasons you may NOT want to rent:
- You are giving your money to your landlord. You will never see it again.
- You can miss a great opportunity in the housing market.
- If your rental costs are lower, you have to ask if you would save the difference. It is easy to simply spend it instead of saving and investing it.
- You may get a bad landlord. In some places, it can take days and even weeks to get important repairs done.
- You may have to pay a deposit up front for damages. You will also have to pay a rental deposit – usually equal to a month’s rent.
- You may have limits put on the way you decorate. For instance, you may not be allowed to paint the apartment. Or, if you do, you may have to return it to the original colour before you leave – or forfeit your damage deposit.
Reasons you may want to buy:
- If house prices rise, your home will be worth more than you paid for it. If you sell, you will make money.
- You may also build equity as you pay off your mortgage – although you are also paying a lot of interest to the bank. That’s what people mean when they say “rent from the bank.”
- You can modify or renovate your place any way you want.
- You can always rent out your home in the future.
- It may be easier to borrow money because you can use your home to secure a loan.
Reasons you may NOT want to buy:
- Total costs can be higher than renting.
- If you buy a home, you may face unexpected repair costs.
- If you buy a condo, monthly fees can increase over time. There is also the worry that you may have to pay a special assessment fee to cover major repairs.
- It is harder to move quickly. It can take time to sell the home. You may also face a mortgage penalty.
Did you know? The true cost of home ownership is often around 40% higher than your mortgage payment alone.
Remember: When interest rates are low, the costs of buying and renting can be fairly close
It depends on what kind of housing you are looking for. It also depends on your local rental and housing markets. In some cases, it is really a matter of what you prefer. Make sure you consider other factors like how much you can afford, how soon you are likely to move again, and how important it is to you to own your home.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.