Study finds that buying a home rather than renting makes sense
Canadians could have more than $1000 a month to save for their retirement or invest if they bought a home rather than rented.
While many Canadians face barriers to homeownership, a report by Mortgage Professionals Canada shows that, where buying is possible, it makes clear financial sense.
Looking at the comparative costs of homeownership versus renting over 5 and 10 year periods, MPC’s chief economist Will Dunning found that, in most scenarios, buying is the lower cost option.
"Everyone wants to save for their future, but rising costs, including rent, are making that more difficult," Dunning stated. "The lower life-time costs of homeownership mean that owners have more ability to save for retirement than do renters. The financial benefits of homeownership go beyond equity accumulation."
For example, if mortgage rates remain at 3.25%, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting for almost 98% of cases.
That would mean a saving of $1,295 per month.
Even with higher rates, there are large savings: at 4.25% it would save $1,014 per months, at 5.25% the saving is $726 per month. These scenarios still make buying more cost effective than renting in the large majority of cases.
Very beneficial investment
"The report demonstrates that the money Canadians are spending on monthly rent, if used instead to finance a home, would be a very beneficial investment over time," explained Will Dunning, author of the report. "The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of homeownership – the mortgage payment – typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership."
