There are so many articles, blog posts, and discussions out there regarding whether renting vs. home ownership, or whether buying your own place trumps paying to live in someone elses.
I won’t bore you with my take on the whole thing. I’ll just tell you that I’m 120% home ownership and -20% renting, based solely on my experiences, thought processes, and the fact that I’m annoyed incredibly easy and I’m thisclose to filling up my top neighbor’s apartment with a bouncy castle so I don’t have to hear them stomping anymore.
An extremely important consideration in deciding whether or not to purchase a home, is that rent payments are forever. You’ll always need a place to live. Your mortgage can be paid off.
My goal is to buy a house in 2012 or early 2013. I’m 23. If I took on a mortgage now, even at 30 years (the longest possible in Canada at 5% down payment), I would be 53 when I paid off my mortgage if I made no extra payments, prepayments, or increases in payments.
If I plan to live until I’m 85, I would still have over thirty years of life left in me after my mortgage was paid off. If I was renting, then I’d have 30 years of rent payments to pay.
Some might argue that their children will be paying for accommodations, but with children being less and less likely to care for their aging parents, I would never consider that a guarantee of a place to live, or even a likelihood of a place to live.
When you take out a mortgage, you’re paying into something that will eventually become yours and that, with the exception of house insurance, property taxes, and renovations and repairs, you won’t have to pay into after it’s paid off. When you rent, you’ll always have to pay rent.
When I think of my retirement, one of the things that I almost bank on, is that my mortgage by then will be paid off, so my cost of living will decrease thus requiring less in retirement savings and pensions than I require now by way of my income. If I had rent to pay, I wouldn’t be able to assume my cost of living would go down.
I had a co-worker when I worked in retail that struggled with this. She had never owned a home, and had rented her whole life. In her retirement, she had to work part-time because her pension and retirement accounts didn’t cover the cost of her rent. Many people would advise you to then just sock away more cash for retirement, but doing so and paying rent is sometimes hard to stomach. In Canada, home ownership is expensive, but so is renting.
After looking in the real estate market, at the current interest rates, rent and home ownership are about the same cost. For instance, on MLS there is an apartment for $179,000. It’s two bedrooms, one bathroom, and the payment is $851 per month plus strata ($170 for that building). That’s about $1021 per month, not including property taxes. This is with a 4% fixed interest rate (3 year fixed right now is 3.19%) and an amortization period of 30 years. There is a rental about two blocks down with one bedroom, one bathroom, and the rent is $950 per month. The MLS listing is 2 bedrooms, so even with property taxes, this is very comparable (I live in an expensive area).
The only difference is that after 30 years, you own the home for the first apartment. After 30 years in the second one, you still have to make payments. Other than wanting to punch my neighbors in the jugular and hating rental restrictions, this is a big consideration for my and the boy when we considered home ownership.
What’s your take? Put more money away now and be a rental lifer, or own your own home to decrease living costs in the long run?