Can’t decide between renting or buying a home? 2020 has been unpredictable, to say the least, and the way society functions has completely changed during the past few months. As a result of the pandemic, the housing market has taken a serious hit, making homeownership now a more viable option for many Canadians. Lending rates are also incredibly attractive now, with The Bank of Canada recently reducing interest rates from 1.25 percent to 0.25. Although this may seem like an opportune time to buy a home, there are a few important factors you should consider.
To help you determine whether renting or buying is the best option for you, consider the current pros and cons of each:
Pros of renting
One of the determining factors that push people towards renting is the high cost of living, especially in urban areas, where homeownership can sometimes feel unattainable due to high prices and low housing supply. Although interest rates may be low right now, the overall cost of homes has remained generally the same throughout the pandemic. Meanwhile, many provinces (including Ontario), imposed a temporary ban on short-term rentals and Airbnb during the height of COVID-19, making more rental units available and driving down rent prices.
With the current rise of unemployment in Canada, choosing to rent can be the safer option if you’re worried about job security, since the only upfront costs associated with renting is a security deposit and renters insurance. Should you find yourself needing to downgrade to a cheaper rental, the amount of money lost would be significantly less than had you purchased a home and needed to sell quickly. Maintenance or repairs, for most renters, is the responsibility of a landlord or property manager, so you will not have to cover the out of pocket costs that plague most homeowners.
Cons of renting
Given the impact COVID-19 has had on the economy, renting may seem like the best option now, as many people find themselves in precarious financial situations. However, a slow down in the real estate market could reveal some bargains for those who are ready to make the jump into home ownership.
One of the major issues that renters face is steadily rising rent prices. Unless you’re in a rent-controlled unit, the monthly cost of your apartment will likely continue to rise due to inflation. You also won’t see any returns on the money you’ve spent on rent over the years, since you are essentially paying someone else’s mortgage. This can also create a lack of security since your landlord can sell their property whenever they please.
Pros of buying a home
For many Canadians, the idea of making major life changes during these uncertain times can seem daunting but if you’re a current renter who had plans on buying a home or a homeowner looking to upgrade before COVID-19, now may be the perfect time to do so. Mortgage rates are incredibly low, making the idea of buying a home even more tempting. Buyers have been reluctant to attend open houses due to social distancing, which may make sellers more motivated and open to negotiation. Despite the current economy, if you are feeling secure in your job and investments, you might find yourself reassessing your budget and able to achieve new financial goals.
In terms of an ongoing investment, homeownership is a great way to build equity and autonomy. As a homeowner, you have the freedom to do what you want with your property, whether that includes renting it out for extra income or making renovations to increase its value. Another benefit of owning a home is that you will see the impact that your monthly payments make. You’re also eligible for tax breaks that aren’t available to renters. If you’re a first-time home buyer, for example, you might qualify for a tax credit of $5,000, which can add a few hundred dollars to your tax refund. As a first-time buyer, you’ll also be able to make a tax-free withdrawal from your RRSP (Registered Retirement Savings Plan), to be paid back through contributions within 15 years.
Cons of buying a home
For many Canadians, the idea of owning a home may have seemed impossible before COVID-19, but with the lowered interest rates, you might find yourself wanting to take advantage of this opportunity. But if you don’t have a 20% down payment available, then you should measure the risk vs. the reward of purchasing a home this year. Unlike renting, there are a lot of outside costs associated with buying a home like deposits, home inspection fees, appraisals, legal fees, harmonized sales tax, homeowners insurance, moving costs, and property tax. As a homeowner, you’ll also be solely responsible for home maintenance and repairs, which can get quite costly. Assess your current financial situation and employment stability before making any big financial decisions in this climate of economic instability.
Buying a home is also a long-term investment, which can create a lack of mobility for you and your family. Should you decide to move cities, provinces, or countries, the process will be a lot more taxing than what you would have faced had you just switched rental units. The frequent fluctuations within the housing market can also affect the time it takes to sell your home and the amount you will receive back, which can sometimes be less than what you purchased it for. Also, if you are considering buying a home as a rental property, consider how the pandemic may affect your ability to attract tenants, and your tenant’s financial stability during these uncertain times.
When choosing between buying or renting a home, it’s important to not rush into any major decisions. You should carefully weigh out your options and ensure your decision not only aligns with your current finances, but also offers stability during this time of social turmoil.
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