« Is a happy worker a more productive worker? | Main | Do you fear the double-dip recession? »

July 27, 2021

Why rent when you can buy?

Although it varies widely from city to city, the upfront cost of buying a home is only a little more than renting in some areas of the country.

Which means, with interest rates still relatively low, this might be the time to seriously evaluate the decision of whether to rent or own, say realtors.

Let's say you’re renting now for $1,300 per month. Assuming a mortgage rate of $5.25%, $1,300 will be equivalent to a monthly payment on a mortgage of $218,000, based on a 25-year amortization.

If you chose the 30-year or 35-year amortization, the $1,300 would be equivalent to monthly payments on mortgages of $236,000 and $251,000, respectively – the cost of a modest place in markets like Halifax or Gatineau, Ottawa’s sister city, for instance.

Wait a minute, though. The true cost of home ownership is often around 40% higher than your mortgage payment alone.

When you add on all the extras like property taxes, condo fees, utilities, insurance and normal maintenance and repairs you can easily be looking at an actual monthly housing payment that’s closer to half as much again as your mortgage payment alone.

On the other hand, while you can’t do much about taxes, a big portion of your condo fees goes towards expenses that you may already be paying in addition to your rent, such as heating, water, etc. And then there’s the potential growth.

Fair enough, but your home needs to grow in value by at least 15% to break even from transaction and maintenance costs, maintains the Money Mechanics blog.

Need a visual? Use this quickie graphic to give you a rough comparison, keeping in my mind that US homeowners get a tax break on mortgage costs that Canadians don't enjoy.

What do you think? If you live in an area where all this might be a viable option, are you better off stretching to buy or opting for the care-free rental choice?

By Gordon Powers, MSN Money



Post a comment


Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...