Renting – Making Your Landlord Rich

Your Mortgage Matters by Vancouver Mortgage Broker Rebecca Awram

Most Canadians have likely asked themselves if it is better to buy or rent a home. Purchasing a home is one of the biggest decisions most people ever make.

Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying vs renting to decide whether home ownership is the right choice for you.

Some advantages of buying vs. renting

Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.

Every time you make your mortgage payment, you are growing equity in your home.
When you rent, you are building equity for your landlord.

At the start of a mortgage, most of the payments go toward paying off the interest and less goes toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate.

Most mortgages offer you the choice of making extra monthly or annual payments to reduce your principal faster. You can raise payments, double payments, make extra payments or put a lump sum directly against the principal. This will also help reduce the length of your amortization (the time it takes to pay off the mortgage principal), which in turn, saves you money.

From an investment perspective, there is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate (or increase in value) as time passes, building up your equity. As your equity grows, it can be easier to upgrade to a more expensive home in the future due to the profit you’ll make when selling your current home.

As an owner, you are welcome to decorate and improve your home as you see fit. Ownership tends to provide a sense of pride and often strengthens ties to the community for you and your family.

If you decide that home ownership is the right choice for you, it is important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great stepping stone to start building equity that may eventually allow you to buy the home of your dreams.

Moreover, since we’re currently in a buyer’s real estate market and interest rates are at historical lows, now may be an ideal time to move from being a renter to an owner.

Some disadvantages of buying vs renting

While the benefits of buying a home are somewhat obvious, it’s also important to remember that home ownership brings some added responsibilities as well.

For starters, a home can be expensive. Your monthly payments will likely be more than what you are currently paying in rent, especially when you factor in such things as your mortgage, property taxes, insurance, condo fees if applicable, repairs and general maintenance.

The added financial responsibility ties up more of your cash flow. It is also likely to reduce your flexibility to move to a new location or change jobs without a lot of effort.

While your home might appreciate over time, don’t expect to get a huge profit quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you had to sell because your home may not have appreciated enough to cover the real estate fees, and moving, renovation and other selling costs.

Real estate is, however, usually considered by most a good investment over the long term.

When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then list out the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a deeply personal decision based on your own individual priorities.

Talk to Greater Vancouver and Maple Ridge mortgage broker Rebecca Awram if you have any questions.

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