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20 Mar

Buying vs. Renting

General

Posted by: Garry Grewal

Purchasing a home is one of the biggest decisions most people ever make. At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

Some Advantages of Buying a Home

Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.

Each month when you make your mortgage payment, you are building equity in your home. Equity is the portion of the property that you actually own through your monthly payment versus the portion that you still owe the lender.

At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.

Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 20% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage) which, in turn, saves you money.

There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity for you. As you build equity and your family grows, it’s usually easier to upgrade to a larger home in the future thanks to the profit you’ll make when selling your current home.

As an owner, you can also modify and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community.

If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity which may allow you to buy the home of your dreams one day.

Since interest rates are low, now may be an ideal time to enter into home ownership for the first time.

Some Disadvantages of Buying a Home

Although it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well.

For one thing, a home can be expensive. Chances are, your monthly payments will be more than what you are currently paying in rent when you factor in such things as your mortgage, property taxes, utility bills, repairs and general maintenance.

Owning a home ties up some of your cash flow and is likely to reduce your flexibility to move to a new location or change jobs.

While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you sell because your home may not have appreciated enough to cover the real estate fees, legal expenses and moving, renovation and other selling costs.

Real estate is, however, usually considered a good investment over the long term.

When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but ultimately it’s a personal decision based on your own priorities.

If you’re thinking of buying your first home, I’ll be glad to answer all of your mortgage-related questions. To get started, simply give me a call at 416-674-5626 or send me a quick email: garry.grewal@dominionlending.ca