To help you navigate post-CERB Canada, here is everything you need to know about what government help is available to you in 2022.
The choice between renting a home or purchasing it can be a difficult one to make. Both options certainly have their pros and cons. In the end, your decision should be based largely upon your own personal needs, life goals, and financial well being.
Trying to enter the Canadian housing market? Check this out.
However, If you’re still on the fence about whether it would be better to rent or buy your next home, keep reading. Below, we’ve provided a list of advantages and disadvantages that should help you make your decision.
Advantages of Buying a Home
As expensive as a typical mortgage can be, there are plenty of reasons why you might love being a homeowner. In fact, for many people, owning a home is their ultimate goal to reach. Here are just some of the ways homeownership could benefit you.
You’re Building Equity
As you pay off your mortgage, you’ll be building equity. What is home equity, you ask? Simply put, the equity of your home is the difference between the value of your house, if you were to sell it at this moment, and the amount still owed on your mortgage.
Here is an example: let’s say you currently owe $200,000 on your mortgage and you bought your home for $300,000. You would initially have $100,000 ($300,000 – $200,000) in equity. Fortunately for you, the real estate market went up and your house is now valued at $400,000. You now have $200,000 ($400,000 – $200,000) in equity.
Home equity is valuable because it can be used as collateral. Collateral can help you gain access to better loans with smaller interest rates. If you want, you can also take out a HELOC (home equity line of credit), which you can dip into when you need to cover various expenses, then pay it back over time, similar to a regular line of credit, only weighed against your home.
Wondering if you should use your home equity to pay your credit card bills? Read this.
A Home is Asset That Can Be Sold
Depending on the location of your home, it can become a very valuable asset over time. In a lot of major Canadian metropolitan areas, such as Toronto or Vancouver, real estate prices have been skyrocketing over the last few years. Even an empty plot of land in one of these cities can be worth a small fortune. So, once you’ve paid off your mortgage completely, your home becomes an asset that can be sold for cash. You can also use said asset as collateral to secure other types of credit products, such as car loans.
To learn some of the ins and outs of asset-based financing, watch this video.
You Can Use Your Home to Generate Income
On the subject of renting, if you’re having difficulty paying your mortgage, you can consider monetizing your property. Another advantage of owning a house is the ability to lease out a room or whole section, like the basement, to a renter. If you went so far as to renovate that basement into a small apartment with a kitchen and bathroom, you could see a decent profit. This way, you would be using your property to create income that could be useful for your mortgage or other financial purposes.
Thinking about becoming a landlord? Make sure to ask yourself these 5 questions.
You’ll Feel at Home
You may already have imagined the house of your dreams. The paint color, the furniture, the additions you’d like to install. In contrast to renting, where you generally aren’t able to modify all aspects of your living environment, when you own a house, your creativity is not limited. You’ll be able to make a home that reflects your own personality. Additionally, any renovations you make can boost the value of your home, if and when you decide to sell it. If not, you can always pass it down to your children.
Having trouble finding a house that you like? Consider a home builder’s mortgage.
Disadvantages of Buying a Home
Yes, the benefits of becoming a homeowner are numerous. However, before you make your decision, it’s also very important to consider the drawbacks to such an investment.
Unfortunately, as great as it can be, owning a home is expensive. In fact, your down payment and mortgage alone, plus interest fees can cost you well over $200,000, far more if the house is in good shape or located in a desirable area. True, the purpose of a mortgage is so that you can pay for your house over time, rather than all at once. However, it’s still a very big financial responsibility to take on.
On top of that, there are many hidden costs that a lot of homeowners don’t consider before they buying, such a home inspection, property taxes, and legal fees, none of which are your problem when you’re renting. Your hydroelectricity bills alone can also cost a pretty penny. All these expenses can make it hard to afford your other basic necessities. Ideally, your housing costs should only represent roughly 35% of your budget, but this may be quite hard to achieve considering the countless costs associated with buying a home.
What is the 50/20/30 rule of budgeting? Find out here.
Selling Can Be A Pain
Another element that some would consider negative is the act of putting the home up for sale and waiting for another homeowner to buy it. As we said, in places like Vancouver, any good real estate is likely to be snatched up quickly for a very respectable price. Then again, if you didn’t buy your home in a desirable area or it’s not in decent shape, it can take months to find a prospective buyer. You may have to get it appraised and hire a real estate agent, both of which can be expensive.
Maintenance and Repairs
Homeownership also means taking on all the responsibilities that come with it, including the property upkeep. A hole in the roof, changing your furnace, a flooded basement, or if anything is missed during the initial home inspection, all those costs fall to you and could spell disaster. If you ever want to sell your home, it’s essential to for it to be in good condition so that you can get your whole investment back.
If you can’t handle all these combined costs and you start missing mortgage payments, your credit will be damaged and your home could be foreclosed. While these unexpected costs shouldn’t deter you completely from the idea of homeownership, it’s best to realize how significantly they impact your budget before you sign any contracts.
Advantages of Renting
If the idea of being responsible for your own home is too nerve-racking for you, there’s also the option of renting your next space. Maybe not the best choice if you want to build equity or make renovations, but food for thought nonetheless.
What is a rent-to-own home?
One of the biggest perks of renting is that your responsibilities are relatively limited in regards to maintenance and repairs. The landlord of your apartment complex or house your will be responsible for the majority of those issues. When you’re renting a house, the landlord will probably even do all the outdoor work for you, such as mowing the lawn.
Thinking of renting in Ontario? Check out the rent-to-own program in Ontario.
Relatively Low Costs
In some provinces and with some rental dwellings, rent payments can end up costing as much as mortgage payments. Then again, because your rent payments are typically fixed, you won’t have to worry about the unpredictable costs of owning a house. Finding a roommate can also make renting cost-effective, so you’ll have an easier time sticking to your budget. Some landlords even throw in perks, like one month of free rent, free basic digital cable packages, etc.
Renting is definitely a more accessible option, as the financial requirements are less strict. While many rental agreements do require a credit check, you won’t be held to the same standards as you would if you were applying for a mortgage with a bank or other prime lender. At a bank, if your credit score or net-worth isn’t up to their standards, your mortgage application could be denied, costing you time and points off your credit score because of “hard inquiries”. Landlords, on the other hand, only want to know that you can pay your rent, and any credit check they perform is a “soft inquiry”.
Read this if you’d like to know more about credit inquiries.
If saving money is at the top of your list, renting can be a great option, as many places offer utilities included. A furnished apartment, hot water, electricity or internet, many of these recurring costs can be included in your rent. This way, paying your debts and other necessities will be more affordable.
Want to know how the money you owe affects your credit score? Look here.
Disadvantages of Renting
While renting has many advantages that outweigh homeownership, as with any real estate transaction, it’s important to learn about its drawbacks.
Nothing to Sell
As we mentioned, selling a home can be a hassle. Then again, when you’re renting, you’re not building any equity. This means that when your lease agreement ends, you don’t have anything to sell and you’re not building any wealth. All your rent money, which you could have spent on your mortgage, is going to your landlord instead.
Dependent On Your Landlord
While your landlord being responsible for the maintenance of your rental property can be a benefit, it can also be a burden. If your landlord is not the type to take immediate action or is only available at inconvenient hours, you may end up waiting longer than you want for something that should be an easy fix.
Unfortunately, there are also no guarantees when it comes to renting. The cost of your rent may increase, your building could get sold to a new owner or your lease may not get renewed. Moving every year or every other year can also be a huge pain. However, keep in mind that there are many laws in Canada that protect renters from issues like this. If you feel as though you’re being mistreated as a renter, you should refer to your province’s laws concerning these problems.
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