Sometimes it’s difficult to see the benefits between buying or renting a home. While renting allows you to have more spending money, owning gives sense of “belonging”. Let’s take a look at the pros and cons or renting and buying a home…
Renting is often seen as an expense, but it’s also a way for the renter to avoid paying taxes or renovations out of their own pocket. However, unlike mortgage payments rent never decreases it usually increases annually. Rent is constantly subjected to inflation because property, municipal or school taxes rise every year, and in turn the landlord raises the rent to pay the new taxes.
On the other hand, monthly mortgage payments can be very high in comparison to your monthly rent, especially in Montreal. By renting you can save more money and invest it elsewhere. This is known as “opportunity cost“. Look at renting as a short term solution to help you save money or buy investments. Think about it this way: you’ll have more money because you wont be responsible for paying high mortgage payments, condo fees, and exterior and interior maintenance.
Another upside to renting is that you can luck in and live in a building that has a pool or a gym or both. These additional luxuries are bonuses, and are great for those wouldn’t be able to afford them otherwise.
Homeowners are 100% responsible for all of their home management costs such as: mortgage payments, debts, municipal and schools taxes, home insurance, electricity and heating. They also have to pay for home maintenance, repairs and renovations for the interior and exterior of their property.
All of these payments can be both monthly, annually or bi annual, or unexpected repairs.
You also have to save for a down payment. If you’re unable to make the minimum down payment on your home when you buy it, the Canada Mortgage and Housing Corporation(CMHC) will add a premium to your loan to help you. The CMHC loan will protect you from mortgage default, and you must pay the loan off throughout your mortgages lifetime. You can also borrow the money from your RRSP, but you have to replace it within two years.
The strongest argument against renting and home owning is: owning. The idea of “owning” a home has a strong psychological pull on people; if you’re owning, you’re not wasting money. According to Statistics Canada in 2006 60% of Quebec households owned their home and more than 80% were families with children. In Ontario 71% of people surveyed owned their home and nearly 85% where families with children.
In Quebec, the largest proportion of home owners lived in the Lanaudiere region (76.1%). Other regions included: Gaspesie/Îles-de-la-Madeleine (75.5%), Chaudiere-Appalaches (73.5%), and the Laurentides (73.2%), the North Shore (72.3%), and Montreal (70.5%). Costs in urban areas are usually significantly higher, especially if you want to live on the quiet side of town.
There are several online tools you can use to help determine if you’re financially ready to buy a home. You can use Canada Mortgage and Housing Corporation’s guide to Buying a Home or Service Canada’s Housingsection. You can also read plenty of articles or personal testimonies online.
Remember to take your lifestyle into account as well as these factors: your relationship status and income, your debt and savings.
So, what do you choose? Do you rent and travel or buy a home, have a mortgage and enough bedrooms for kids?