Text by Anni Markmann
For many people who have been renting for years, the question may become, “Is it better to continue renting or would I be better off buying?”
Almost always, you are better off becoming a homeowner than continuing to rent. The only time you should continue to rent is if you intend to move within a few years, your rent is very low, or you don’t expect to live more than another 15 years.
Without doubt, both renting and owning a home have advantages and disadvantages. Therefore, it is important for you to understand these differences so you can make the best decision for you and your lifestyle.
Stable Housing Costs – One of the challenges associated with renting a house is that rent can be unpredictable. Most often, a property owner will raise the rent annually, even if it’s just by a small amount (even in Manitoba with rent controls). When buying a house, if you decide on a fixed rate mortgage, the payments will stay the same throughout the term of the mortgage (normally five years). Your property and education taxes may go up, so keep these increasing expenses in mind.
Equity – Money that you pay towards the principal on your mortgage each month (or each week) increases the percentage of your home you own. In a way, you are forced to pay yourself first! Of course, one of the biggest advantages in owning a home is that over the years, as the value of the house increases, your equity also increases. Let us say you purchased your home for $125,000. In seven years of owning the home, the value of the house goes up $20,000. That means when you go to sell, you now have $20,000 more in your pocket, plus the difference between the original purchase price and the remaining mortgage amount. And you don’t have to pay any income tax on the gain from your principal residence. With renting, all of the money you pay to your landlord is his or hers, providing you with zero benefit.
Pride in Ownership – Owning your own home allows you to say the house is yours. That means you can customize it however you want: if you want to paint the bedroom, you can. If you want to plant flowers, paint the outside, put in new carpeting, or whatever you want to do, you can because you own the house.
Expenses – Now, being a homeowner also means being responsible for your own expenses. In other words, if something breaks like a hot water tank or the furnace, then you pay, whereas when renting, the landlord would be responsible.
Freedom of Mobility – Finally, buying a home means that you are set, at least for awhile. Keep in mind that you could move within a year but you would likely lose money on the home.
Most everyone has heard that renting means “throwing your money away” on rent. That’s mostly true, but not entirely. When you buy a home you will still throw some money away on things that don’t build any equity. These include: purchasing costs; interest on your mortgage; property taxes; property insurance; CMHC fees for mortgages with less than 25% down; and maintenance.
These aren’t chump change. In fact, if the only financial advantage to buying a home were building equity with each payment, it wouldn’t be enough to offset these expenses. What makes home-buying a good deal is all of these things together: you build equity, your mortgage payments stay the same, and your house value increases over time.
With house values increasing substantially in Manitoba during the past few years, present homeowners have finally seen the real benefit of being a homeowner. For new homeowners, the higher prices make the monthly mortgage costs higher, but it’s usually still better than renting