26 Jun

Rent or Buy? The Age Old Question.

General

Posted by: Tony Rossander

If you’re reading this and just bought your first home, or you’ve been a homeowner for years, there’s good news. You can feel confident you made the right decision for your long-term economic wellbeing. That’s according to the findings of a study by Mortgage Professionals Canada, the national association that represents the mortgage industry.

The organization decided to take a deep dive and compare owning versus renting in Canada, and conclude which one option would be the best financial decision in the long run.

As it turns out, the cost of ownership was lower than the cost of renting in more than three quarters of the 266 combinations or cases studied, which included locations and types of dwellings.

As of the second quarter of 2018, the monthly cost of owning was lower than the cost of renting for 72 (just 27% of the 266 cases).

But, the study noted, costs of homeownership include considerable amounts of repayment of the mortgage principal. This is a form of saving. When this saving is considered, the “net” or “effective” cost of homeownership is correspondingly reduced.

On a net basis, the cost of ownership is lower than the cost of renting in 202 of the 266 cases (76%), according to the study.

On average across the 266 cases, the monthly cost of owning exceeds the cost of renting an equivalent dwelling by $541 per month. But, when the principal repayment is considered, the net cost of owning is $449 less than the cost of renting.

MPC’s study also found the largest element of the ownership cost (the mortgage payment) is fixed for some time. The result is that the cost of renting will increase more rapidly than the cost of homeownership. The analysis projects the costs of owning and renting for five years and 10 years, assuming that all of the cost components (apart from the mortgage payments) rise by 2.5% per year. The study concluded that homeownership becomes increasingly advantageous over time.

The study concluded by the time the mortgage is fully repaid in 25 years (or less) the cost of owning will be vastly lower than the cost of renting, in every one of the 266 cases. On average across the 266 cases, the cost of owning is projected at $1,549 per month versus $4,655 for renting equivalent dwellings.

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This article originally appeared in the DLC Newsletter for June 2019