Rent or buy a condo, loft, house that is the question that many prospective home buyers are struggling with in this uncertain economic market. WHICH IS BETTER?
When you rent you pay someone else’s mortgage with no sense of security. When you own your home, you pay your own mortgage, and begin to build equity for your future.
It has never been easier to own your own home, because of zero down payment mortgages, 5% mortgages, the new 35 and 40 year amortization rates, and great mortgage rates.
In the past, only those that could come up with 25% down payment could purchase a home, the amortization rate was 25 years, and mortgage rates were as high as 10%. Imagine now living in you own home is much easier, and like paying rent, but you are building equity.
Recently, it was reported that people renting in Toronto are struggling to pay their rents, as average rents continue to rise. While paying someone else’s mortgage you are at the mercy of yearly rental increases.
For example, in Ontario, because of policies implemented by the conservative government, as a renter you are faced with the annual guideline rent increase. It states that the landlord can increase your rent each year by about 2.9%, whether or not they need to.
Of course most landlords increase the rents, and you have to struggle with higher costs. Every year your rent goes up with no protection or relief in sight.
Owning real estate has always been considered a good long-term investment. The real question you need to ask yourself after the initial rent or buy; do I really want to pay RENT and live an unsure future for the rest of my life?
Generally, a home makes financial sense if you are going to live in it for at least three, four, or preferably five years. However, in some markets like downtown Toronto the financial return was much faster with homes rising at a rate of 8 to 11% per year from 2005 to 2007.
No matter where you purchase your home, you need to take into consideration the costs involved in buying and selling a home, from home inspections, staging, condo fees, and legal fees to real estate commissions.
When people lose money in the real estate market it is usually because they did not own it long enough, and they sold too quickly. This usually means within the first 3 years of the purchase.
You cannot depend on making any real profit in real estate in the first 3 years. In fact, the market may fall after you buy your home.
However, real estate has proven to be one of the most stable long-term investments in history. It is predicted that home prices will continue to increase at least 5% yearly in Ontario, and higher in areas like downtown Toronto.
It is your guarantee of retirement security. Overall, it is far better to own your own home than rent. Not only for the pride of ownership, but because it is your only long-term hedge against inflation. With rental rate increases constantly, there is no guarantee you will be able to afford them as the years go by.