Renting vs. buying: How to make the right decision?

Identify your ambitions and plans

For many people, buying a property is a life goal. It’s also often the biggest purchase they ever make. But because becoming a homeowner comes with many new responsibilities, it’s important not to take the plunge too quickly.

Thinking of buying a property? Start by asking yourself these questions about your situation:

• Are you prepared for the upkeep, potential renovations, emergency work and unforeseen expenses associated with owning a property?
• Is homeownership important to you?
• If you’re buying as a couple, is your relationship solid enough?
• Is your professional situation stable?

Consider what your plans are for the next five years. For example:

• Do you want to have children?
• Do you plan to move to another city or even another country?
• Do you plan to stay in the same job in the long term?

Your answers to these questions are a good starting point to help you make the right choice.

Take stock of your financial situation

Is buying a property the best option given your situation? If you decide that it is, make a budget to find out whether your current income (minus your expenses) is sufficient to absorb the cost of a property. Don’t forget to plan for a financial cushion to cover unexpected events.

Assess your borrowing capacity

The most realistic way to see if you can afford to buy a property is to estimate the mortgage amount you could obtain. You can use our simple tool to calculate your maximum loan amount.

When you take out a mortgage, financial institutions will typically calculate a higher mortgage rate than the one you’d actually be getting, which is known as the qualifying rate. This helps you determine whether you’ll be able to meet your mortgage payments if interest rates rise. 

Consider all the costs involved in buying a home

Buying a property comes with many advantages. In a way, it’s a form of “forced savings” that helps you build your wealth. Owning your own home also gives you long-term stability as well as the freedom to decorate and renovate your home to suit your personal tastes.

However, this investment doesn’t come with guaranteed profits, and there can also be considerable financial and psychological burdens associated with maintaining a property. Here are the main costs to consider when making your decision. 

Costs to consider when buying

To purchase a property, you need to make a minimum down payment of 5% of its value. There are also other costs to consider, such as appraisal and inspection fees. Plus, you need to include the legal fees of the person (notary, lawyer) who will be handling the transaction.

If your down payment is less than 20%, you’ll need to purchase mortgage insurance. In Quebec, Ontario and Saskatchewan, you must also pay a provincial sales tax on the insurance premium. This amount cannot be added to your loan amount.

Buying a property in a new development? In this case, tax will be added to the final purchase price. On the other hand, should you opt for an older property, there may be additional costs related to renovations. In either case, you’ll need to factor in welcome or transfer taxes as well as moving expenses. 

→ Read our article on 9 fees to consider when buying a home

Annual property expenses

Being a homeowner comes at a cost: In addition to mortgage payments, you also have to cover several annual expenses, including municipal and school taxes and loan insurance. Buying a condominium? Don’t forget to factor in condo fees. 

Coping with the unexpected

Unplanned renovations or repairs? Rising municipal taxes or mortgage rates? When you’re a homeowner, you need to be prepared for the unexpected. That’s why it’s important to have an emergency fund in your budget.

Save to build your wealth in other ways

Most experts agree that buying property isn’t for everyone. In addition to generally offering greater flexibility and peace of mind, renting an apartment can be a favourable option if your monthly rent is affordable. And depending on the amount of your down payment, the rent/space ratio is often more advantageous than the mortgage/space ratio.

That said, renting gives you less freedom. You’re dependent on your landlord’s availability and attentiveness when it comes to maintenance. You also need to find another way to build your wealth.  

And how do you build wealth as a tenant? The key is to be disciplined and save as much as possible. Saving helps you build financial value for the future so you can enjoy a comfortable retirement. 

Still wondering whether you should buy or rent? Our calculator will help you determine whether or not it’s financially worthwhile for you. Take the test!

→ To watch de full episode: Buying or Renting? Important Questions to Ask

It’s important to remember that choosing to rent or buy isn’t only a question of money, it’s also a matter of lifestyle choices and emotional considerations. That’s why these factors need to be carefully weighed before making a decision.