As per the economists – buying a home can be 45% cheaper although many renters believe it cost less than to buy. When you buy - one part of your monthly mortgage payment goes towards paying off the mortgage (building equity) and one part towards Interest portion whereas when you rent – 100% goes towards the cost (Zero Equity). Buying or renting is always a very personal decision and depends upon a lot of factors.
Lets look at some of the benefits of renting:
initial investment is low
low or no maintenance required
no property tax
fixed amount - easy to set up a budget for
low cost of tenant insurance
In Home ownership - the cost of interest paid during the term (Prime Rate 3.95%) is the cost of borrowing (Non Refundable) but if you are renting you are paying 100% Interest for sure.
Let’s understand:
No Equity
Monthly rent payments are not being invested in long-term security nor is it building up savings for the renter. When renting, any changes you make toward the house increases the value of the landlord's property.
If new shops open near your apartment, the property value will increase, and eventually so will the rent price.
Home ownership, despite popular opinion, is an equitable long-term investment. Like any investment, it has risk - the value of the property and house. You can minimize the risk by choosing a right location & right house. If you invest in renovating your home, your house value also goes up.
Paying off the principal is like depositing money in the bank, because that money becomes available for reinvestment in the home itself or a new home
Financial Affordability must is taken in to consideration including the other associated cost of home ownership before you decide.
Instability
Your family is living in a rented house on a temporary basis. Any infraction allows a landlord to remove you with a 30-day notice or if he wants to sell the property. As inflation pushes up the cost of living, your rent goes up as well.
Homeowners are permanent residents and their family will not be forced to leave unless their mortgage defaults. Fixed rate mortgages offer stability with consistent monthly payments, regardless of the economy or your paycheck.
As a home owner, you need not to worry about moving at a short notice.
Long Term Wealth Creation
A home can be the ultimate nest egg, helping you create wealth in the long term & providing you with a great investment for retirement. The longer you own a house, the more it should eventually be worth. Every month you are building equity in your home.
The future value of a $300,000 house after 15 years would be around $465,000 at an appreciation rate of 3% means value can be double the cost after 25 years.
As you get older, you can sell the home and use the proceeds to purchase or rent something smaller. Another option: Rent out the house to maintain a steady income stream so you can travel or use for other recreational activities.
On other side, paying monthly rent on time will not create any wealth for the renter but for the Landlord.
Building wealth with real estate investment
Buying your personal residence in the long term can help you buy another property (investment / rental) with the help of equity.
John bought his first house with only 5% down payment and started building equity with accelerated bi weekly payments. He was able to put 20% down to buy investment property with the help of the home equity in his personal residence.
Home ownership helps you build a long term valuable financial asset.
Home ownership can be expensive (upfront down payment & other cost) than renting but there are lots of financial benefits in the long term.
As per personal finance experts - Buy your personal residence as soon as you can and pay it off as fast as you can.
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