The arrival of spring coincides for many with the decision to keep their current home or not. And in some cases, the desire to buy a property adds to the reflection. What is the best option: rent or buy? What are the elements to consider to make this choice?
Your current situation and your lifestyle
Do you fall in love with a house for sale? First, it’s important to understand that buying a property with a mortgage is a long-term commitment that requires some professional or even personal stability. A stable income will be critical to determining your borrowing power and choosing a type of property.
Buying a property also means having a certain amount of money on hand to make the down payment. You will have to prove that you have held this amount for at least 90 days. The minimum down payment required is 5% of the cost of the property, to which you will have to add the mortgage insurance fee from CMHC (Canada Mortgage and Housing Corporation) for a single family home or duplex. This amount increases to 10% in the case of a triplex or quadruplex.
For a property of $ 350,000 and a down payment of $ 35,000 (10%), you will need to pay close to $ 10,000 in insurance. Note that this is not a life and disability insurance like that offered by financial institutions, and if you can afford a down payment of at least 20% of the sale price, you will not have to pay it.
The quality of your credit rating will also affect if you plan to buy. If it is not very good, it may be necessary to consider a higher down payment. This will reduce your mortgage, make it easier to approve your loan and your ability to repay it. Postpone major purchases, such as a car loan, to lighten your credit report. Our “Rent vs. Buy” calculator lets you see how your down payment affects your monthly payments and the amount of insurance you have to pay.
If you’re feeling dizzy, a rental will leave you with more freedom, both financial and personal. You can invest your money where you want it and enjoy short-term returns. Once purchased, your property becomes your investment given the added value that accumulates on the house or condo. You will enjoy the gains made only when you sell your property. But be careful, you have to wait a few years, because the mortgage payments of the first years will mainly be used to pay the interest on your debt.
Your future life
Of course, your personal situation also influences your decision. If you are a couple and you plan to have children in the next few years, you should compare the purchase of a property to the price of renting a house with several rooms. A careful examination of your situation and your goals will allow you to find a solution. Our calculation tool considers all of these elements to determine if it is more profitable for you to buy or rent.
Beyond calculations, the decision to buy a house is often emotional. For many people, a property is a way of life, while for others, it is an investment that will gain value in the long term or a forced savings vehicle that is the only way to go. build capital for retirement. Lastly, such a real estate asset can serve as a lever for financing major renovations or for another life project, or as a legacy to bequeath to one’s children.
Fees … a lot of fees
For rent, the fees are fairly stable: rent, electricity costs, development costs and home insurance. All unforeseen expenses, taxes and repairs rest on the shoulders of the owner. The rental allows to plan a little better its budget and requires a commitment in the short term, the time of the lease. The fact remains that these amounts paid to the owner every month do not constitute a heritage, unlike the purchase of a property.
The purchase of a house or condo comes with a whole lot of fees, starting with those directly related to the transaction, namely the notary, the transfer taxes (welcome tax) and the inspection, which must to be assumed the first year. And if you took advantage of the Home Buyers’ Plan (HBP) allowing you to transfer up to $ 25,000 from your RRSP in a down payment, you will also have to repay this amount in your RRSP, over 15 years, for to be able to use this savings without having to pay taxes.
In addition to these fees that could be described as “start-up”, it is then necessary to pay municipal and school taxes, home insurance, insurance on the mortgage loan, condominium fees, maintenance and repair costs. which add to the monthly mortgage payments.
Your monthly payments can undergo significant changes during the loan period, with the borrowing period extending over 20 years or more in most cases. Fluctuations in interest rates from financial institutions and changes in municipal taxes and urgent renovation expenses will affect your monthly payments. Not only do you need to establish your actual borrowing capacity, but you also need some financial flexibility to counter those effects.
How to prepare to buy
You are not ready yet for the great financial adventure of buying a property? Several steps can be initiated. There is nothing stopping you from getting ready with systematic savings, some of which can be done in a tax-sheltered RRSP, which can then be converted into a down payment through the HBP.
You can also choose to stay with your parents a little longer, after your studies for example, and enjoy substantial savings to turn into savings and possibly down payment. You must also repay your debts and avoid contracting new ones. Since buying a property is a long-term investment, the sooner you buy in your life, the sooner you will benefit from the benefits.
Finally, the lease with option to purchase is also a way to postpone the transaction and its constraints while benefiting from a lighting on the coveted environment. The tenant and the landlord must determine the conditions allowing the possibility of acquiring the property at the end of the lease. The parties may decide in the agreement that the rent payments will be used for the down payment for the purchase of the property.
So, rent or buy? There is no simple recipe … A good knowledge of your financial situation, your long-term goals and your priorities as well as the judicious use of the tools at your disposal will fuel your thinking.