The drive to own your own home is almost primal, and therefore many prospective home owners are motivated by a yearning which may border on irrationality. It is easy to ignore the clear warning signs that you are going to be "house-poor" and may even risk your entire financial future in order to purchase a house that you clearly cannot afford. However, with careful and meticulous planning, it is possible to determine exactly what price range of residential property you can afford, and thus be able to make an informed decision on whether it is better for you to continue to rent or take the leap and own your own home.
The Incomparable Advantages Of Home Ownership
Purchasing a home has the incomparable advantage of building equity. Although a significant slice of the monthly mortgage payment goes towards interest, especially at the beginning of the term, there is still some principal being knocked off the loan each month. Furthermore, the historical trend of residential property has always been to appreciate year on year, with very few short and temporary lapses in the past century. Therefore, you are not only bringing your loan amount down every month, but are also benefiting from the general appreciation in value of your property.
No matter how long a renter stays in their property, at the end of the lease they will always have nothing of permanent value to show for the years of monthly payments. In and as of itself, this is the prime factor which would seem to make owning a home rather than renting a completely open and shut case. However, the overall considerations are not that simple.
The Prime Factors To Consider
You have to consider a plethora of factors such as:
- Your requirement for an improved credit rating to assist with borrowing in the future.
- The amount of personal and financial stress you are willing to endure.
- The complications and expenses of moving.
- Your preference to spend vs. saving.
- The strategy you have in place for your RRSPs and pension.
...and many other factors.
Some Tenants May Find Continuing To Rent Is Preferable
When you are renting a residential property you can elect to end the tenancy on a specific date. However, if you are a home owner and you have been, for example, transferred to another city, you may find that it is simply not possible to sell your home on a specific date without dropping the price to a net loss level.
The single most important factor in the decision of whether to rent or buy is always financial. There are a vast number of expenditures involved in the ongoing ownership of a residential property which go far beyond the mortgage payment. There are taxes, levies, municipal utilities, insurance, and even in some cases strata fees and land lease payments. However, the largest of these can be maintenance and repairs. Some homes can cost tens of thousands of dollars a year just to keep in proper cosmetic and operational condition. This charge is always borne by a landlord and the tenant is generally unconcerned with it.
When you own your own home and the roof leaks or the plumbing clogs or the electrical system shorts out, you are facing repair bills that can easily escalate to the thousands of dollars. There is no calling up the landlord and telling them to fix it. You're on your own.
Therefore the equation as to whether to rent or buy is always conditional on the particular property. If you are in the market for a charming century home you may be facing literally astronomical maintenance and repair expenses. However, if you are buying a new-ish home built by a reputable major contractor, then you may be looking at a period of years where all you really need to do is to maintain the property in good condition and not face any huge unforeseen repair bills.
The Canadian Market Is Now Generally In Favour Of The Buyer
The current state of the residential real estate market is definitely in favour of the buyer. Interest rates are at close to historical lows, prices in many markets are down considerably from just a couple of years ago, and the affordability ratio in the vast majority of the country is now higher than it has been in recent memory. There are various areas of the country, notably South-western Ontario, Quebec and parts of the Maritimes, where a decent small home can be purchased for the price of a new family sedan.
These factors can be a powerful motivator encouraging renters to take the leap into fulfilling their long held dream of home ownership. It is important, however, to keep the decision to buy or rent strictly on the basis of sober financial reality, not sentimentality, pride, or emotion.