Everyone needs a place to call home, but should that place be rented or bought? That is a question everyone must answer at some point in their lives. As you earn more money, you will invariably come to a place where you want to make crucial decisions to reflect your changing status.
One of those essential lifestyle changes will involve deciding on the home you live in. Should you save money to buy your own home? Or is it wiser to keep renting and use that money for something else? What are the long-term and short-term benefits of either of these options?
In the past, most people didn’t have to think about this because owning their own home was considered the best financial decision a person could make. People viewed their homes as their most valuable asset. The home was also a symbol of a higher social status and a mark of responsible citizenship.
But all that is changing, partly due to the rising cost of home ownership in Canada. The other reason for the changing views on home ownership is that younger Canadians value the freedom that comes with renting over the stability that comes with owning their own home.
What should you do? Should you continue to rent or make plans to buy your own home? The proper answer depends on your current situation and where you think your life will be in the next ten years. In this post, we explain the pros and cons of both options to help you make the decision.
Renting
The pros of renting your own home
Lower upfront costs: Unlike when buying a home, where you must save up to 15% of the home’s value to get a mortgage, you don’t need much money to rent a decent home.
No maintenance costs: The only financial obligation you have as a renter is your rent.
The landlord takes care of all the maintenance needs of the home.
Fixed rent amount: As a renter, you know exactly what your housing costs will be every month. There is no risk of unexpected costs due to problems in the home.
Greater flexibility: Renting not only gives you more options when deciding where to live, but you also have the freedom to leave whenever you want.
The cons of renting your own home
You cannot customize the home: Most landlords will not let you change the design of the rented house to suit your tastes. You must live with the owner’s design.
You don’t control the rent amount: The landlord can increase the rent beyond what you can afford. Rents may also be out of reach in the places where you want to live.
You may be forced to move: If the owner sells their property or decides to renovate it, you will be forced to move. You are at the mercy of the owner’s decisions.
You don’t build equity: The rent you pay goes to securing the landlord’s future. Instead of building equity in your home, you help the landlord pay off their mortgage.
Owning
The pros of owning your own home
Customize your home: You can design your home to reflect your needs, lifestyle and style preferences. You can also renovate the house to make it better or improve its value.
You build equity: Unlike renting, your monthly payments are an investment in your future. You gain equity in the home by paying the mortgage.
You can leverage homeownership: You can leverage the built-up equity in your home to increase your borrowing power. It is easier to build wealth with this strategy.
Stability and peace of mind: Owning your own home will inject a level of stability into your life. It makes it easier to plan your future with confidence.
The cons of owning your own home
Heavy upfront costs: To buy a house, you need to save enough money for the down payment on the property. That can be as much as 15% of the market value of the house.
You must maintain the house: In addition to the monthly mortgage, interest and insurance payments, you have to cover the maintenance costs for your home.
Lack of flexibility: It is not easy to move when you own your own house. Even if you want to sell the house, it will often take some time to find the right buyer.
Your home could lose value: A downturn in the housing market could wipe out your home’s value, and there is no guarantee that you will recover the lost value.
So, should you rent or buy your home? That is an important question, and you may not have all the right tools and information to make the best decision. Talking to an expert will let you see the bigger picture when answering this question, allowing you to make a choice that will truly benefit your future.
