RENTING VERSUS BUYING
Experts cite various factors that come into play when you’re deciding whether to buy or rent a home
Purchasing a home is one of the largest investments most people will ever make. And while it’s often regarded as one of life’s milestones, homeownership isn’t for everyone. In fact, while many firsttime buyers are eager to take the jump from renting to buying, it’s critical to first explore whether or not this decision fits with a buyer’s personal and financial goals now and in the long run.
Owning a property comes with several advantages including building equity each time you make a mortgage payment, generating profit when the property gains value, and having the freedom to make your own decisions about things like repairs and renovations, said Nacim Hamane, senior financial planner with TD Wealth.
Yet, in today’s financial climate many homeowners in Canada are overleveraged, demonstrating why it’s important for newcomers to the market to understand the full financial commitment of homeownership before investing.
“Buyers often overextend themselves and become what we call ‘house poor’,” said Tristan Pungartnik, director of operations at Summit Property Management.
Among the many factors to consider when exploring homeownership, the question of affordability should be addressed first.
Having a stable income and a down payment of at least 20 per cent are important elements in making the case to buy a home.
“Job and life stability need to be evaluated,” Pungartnik said. “Buyers need to ensure that if they decide to purchase, they can also maintain their desired lifestyle, which may include things like utility and car payments, family expenses, travel and leisure activities, and maintaining and growing personal savings.”
Buyers also need to consider interest rates and their life situation.
“While interest rates likely won’t increase drastically in the short term, it’s important to consider the impact rising rates could have on your mortgage payments,” Hamane said.
“You should also take into account any potential changes to your family situation: Are you planning a family or do you have a child on the way? Is it possible a parent or other family member may come live with you at some point?”
Considering these questions before buying is crucial, as uncertainty about these issues is one of the leading reasons why people rent instead of buy.
“Aside from these factors it’s best to rent if you don’t have the minimum down payment to purchase
the property, you don’t qualify for a mortgage loan, or you can’t afford the costs associated with homeownership,” Hamane said. “Also, in certain regions property prices are out of reach for many Canadians, so in hotter markets it might make more financial sense to rent for now.”
That said, if you have the financial capacity and you’re looking to settle down for the long term, purchasing a property is often the right decision, Pungartnik said.
“And due to our low mortgage rates, many people are now able to purchase a home,” he added.
The motivation to invest in property often extends beyond financial factors.
“Emotions inevitably play a role when talking about something as important and personal as our home,” Hamane said. “In the case of family homes, parents want to provide their children with a positive environment to grow up in, and look for a property that will provide this.”
In determining the right course of action for your given situation, there are online tools available for putting together a budget and calculating mortgage payments.
But it’s often in people’s best interest to consult an expert about their personal and financial situations when making the decision whether or not to purchase a home.
“A good financial planner works with you to help define what matters most to you and your family regarding housing,” Hamane said. “Instead of focusing exclusively on your monthly income and expenses, they will dig deeper to really understand both your personal and professional goals and how you can achieve them.
“Life changes constantly and your financial plan should change with it.”
In addition to consulting with a financial planner, a mortgage specialist can help you assess whether or not this is the right time for you to purchase property.
“When you provide a specialist with all of the relevant information — such as your expenses, lifestyle, salaries, debts and so on — they’ll be able to properly guide you,” Pungartnik said.
“But don’t be afraid to get a second or third opinion, as often rates can vary depending on financial institution.”
Job and life stability need to be evaluated. Buyers need to ensure that if they decide to purchase, they can also maintain their desired lifestyle ... TRISTAN PUNGARTNIK
This 2012 photo shows a sign advertising condos for rent in Laval.
For-sale signs are seen in front of a Montreal residential building in this 2015 file photo.
A for-rent sign sits atop the exterior winding stairs of a Montreal home.
Tristan Pungartnik, director of operations at Summit Property Management.
Nacim Hamane, senior financial planner with TD Wealth.