Buying a home in many parts of the country is a difficult task, but if you can afford it, your financial situation will be better than renting.
A new report from renowned real estate analyst Will Dunning, sponsored by Royal LePage, looked at 278 scenarios and assumed that a buyer had a 20 percent down payment. It measured the net cost of ownership, the total cost of ownership minus the savings from paying principal.
He found that the purchase was financially beneficial in 91 percent of them.
“For many people, buying a home – especially the first one – is a life changing event and one of the toughest decisions we will ever have to make,” said Dunning, president of Will Dunning Inc.
“It’s a decision that is usually based on a lot of hard work. This research tests a belief that is shared by many Canadians that owning is better financially than renting. And, he finds that belief is very often correct. “
While it is true that the total monthly costs for homeowners may be higher than for tenants, this is where the money goes that makes the difference. Mortgage payments go towards principal and interest. Dunning says the main component is a form of forced savings, so it’s not a real cost.
The longer you own a home, the greater the effect, as interest is the most important component in the first month and gradually decreases over the course of the loan.
Also see: The latest real estate news for house prices, mortgage rates, markets, luxury properties and more on Yahoo Finance Canada.
If mortgage rates go up and house prices go down
Mortgage rates were already low, but fell to all-time low levels amid the pandemic. But even as rates rise dramatically, Dunning says buying is the way to go. The report looked at various scenarios, including a mortgage renewal in five years at an interest rate of 3.62% – the highest rate since 2014 – and property still wins.
He also found that even with a 10 percent drop in home prices, about half of homeowners would still see a positive return on their investment.
The analysis included buying and selling costs such as fees, closing costs, and taxes, as well as ongoing costs such as utilities, repairs, and insurance.
The nine percent of the best rental scenarios were concentrated in luxury homes in expensive neighborhoods. But even in these cases, the additional cost was minimal.
Karen Yolevski, COO, Royal LePage, says homeownership has more benefits than the monthly savings.
“Owning a property allows more freedom and stability than renting. As a landlord, you don’t have to worry about the landlord raising the rent or forcing you to move,” said Yolevski.
“And the owners have the possibility of making a place their own, with renovations or decor.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on twitter @jessysbains.
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