AARYN LIGHTBOWN, SPECIAL TO QMI
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We all know that we need a place to live. The question is whether it is better to rent your home or purchase one. While the obvious answer is that buying is always better than renting, this is not always the case. There are many factors to consider. Statistics Canada reports that approximately one third of our population is renters. In this first article of a two-part series comparing renting to owning, I’ll discuss some of the reasons renting might be right for you.
People today are often less settled, and making a long- term commitment to one place may be too much to handle. If you do not plan on staying in a home for a long period of time, home ownership may not be the right choice for you. Putting 5% down on a home may not seem like a huge financial commitment; however, when you take into consideration you will be paying mortgage default insurance, it may seem a little less positive.
This insurance policy can eat up to 2.75% of that down payment immediately. In dollar terms, a home that is $300,000 with 5% down ($15,000) will have an insurance fee of $7,838 — leaving you with only $7,162 equity in the home. If you decide to sell this home a year later and hire a Realtor with fees around $12,500, you would now need to come up with roughly another $7,500 to get out of the home, not to mention the payout penalty that your bank may charge for a fixed rate mortgage which could be another $10,000 — or more or less, depending on how many years you have locked in and current interest rates.
You are probably now saying, “Yes, but I have all the money that I paid into the home as well.†If you make 12 payments based on 3.5% interest over that year at $1,462.05, out of those payments which total $17, 544.60, $10,056.88 goes to interest and $7,487.72 goes towards principle.
Also to consider is market fluctuation in pricing. If prices go up, you could feel like you have won the lottery using the bank’s money. However, if they go down, the picture may become more dreary.
When thinking of buying, you also need to contemplate the costs of upkeep and repair of the property. If your furnace breaks down, renting means a simple call to your landlord, but home ownership could result in a huge bill that you can’t afford.
Another added cost to examine is that of homeowner’s insurance and property taxes. While renters should carry content insurance for their own belongings, the fee is much lower than insuring an entire home. No home ownership also equates to no hefty property tax bill.
The above are a few of the reasons why purchasing might not be right for you — however, there are many positives to owning your own home. I will focus my next article on all of the positives that come along with owning your home in the Aug. 25 edition of Homes Extra.
Aaryn can be reached at www.HappyHomes.me, or follow her on Twitter at @Real-EstateAaryn. This column expresses the views of the writer.
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