To rent or to own? For many Canadians looking to buy their first house, this is a big – and often challenging – question. As work environments change in the wake of the COVID-19 pandemic, the rent-versus-buy debate is even more relevant. With remote working becoming more common, some people are questioning homeownership as they value the flexibility of renting. If you’re wrestling with this issue, here are some pointers to help you decide.
As a basic rule, renting is usually cheaper than paying the mortgage for a home. However, this depends on a number of factors, including the location and type of house you rent.
Let’s look at the reasons you’d want to own a home first:
- Building equity: Perhaps the biggest motivation to own a home is the equity it promises. With every monthly payment towards a mortgage, you’re building equity in your home.
- Simplicity of investment: Closely linked to equity is the relative simplicity of owning a home as an investment. As soon as your mortgage is paid off, you have a guaranteed asset for life – one that doesn’t require you to constantly be on top of the stock market, bond rates or performance. Property prices generally go up over time, which makes your home an excellent long-term investment.
- Capital gains: The good news about the value of your property increasing over time is that you get to keep the additional home equity and can realize the capital gains if you decide to sell the house (minus the taxes on the capital gains).
- Stability: If you prize stability, home ownership is for you. Living in your own home means you have a secure roof over your head, and no one can evict you on short notice. You also have the freedom to do renovations to enhance the appeal of your house as well as to customize it to your needs.
Now, let’s look at the reasons you’d want to rent instead of owning a home:
- Flexibility: If you like flexibility, renting is for you. Most leases are for 12 months, so you can more easily change where you live.
- Less expensive: Renting is usually cheaper than a mortgage, at least in a homeowner’s initial years. If your overall household income isn’t enough to afford a mortgage, you might want to consider renting.
- Less maintenance: Owning a home means you’re responsible for all maintenance and upgrades. This means you have to be ready to incur the cost and also devote the time needed for these projects. If you rent, on the other hand, all this becomes the landlord’s responsibility, in the event something breaks down or you need to request a new dishwasher.
- Alternative investments: Because renting is relatively cheaper than owning a home, you can use the additional cash to invest, whether in the stock market, bonds or GICs or even towards your own education or to start a business. In place of the equity of a home, you can still have a considerable portfolio to help you become financially secure.
What’s right for you?
In the end, the decision to own a home or rent boils down to your needs and financial situation. If you’re ready for the long-term commitment and have the finances home ownership requires, owning might be for you. If, on the other hand, you prefer flexibility and don’t have the finances available to commit to a longer-term mortgage, renting would be your best bet.
At Canada Life, we have a team of credit planning consultants (CPCs), who offer mortgages and credit advice. Get in touch with me and I can connect you with a CPC, so together we can help you determine which option is the best for you and your unique financial needs.