The cost of housing is a major concern. Deciding whether or not to buy a home or keep renting is a difficult choice. We’ll take a look at some of the advantages and disadvantages of each option to help you make an educated choice.
THE BENEFITS OF RENTING
Frees up money in your wallet
Renting rather than owning a home saves you money on a down payment and other expenses that come along with home ownership. You’ll have more money to spend or invest in the future because of this. If you put your money in the right places, you might do better than buying a house in terms of return on investment. Your investment objectives and strategy must be carefully considered.
Or, you may not be ready to dedicate all of your savings and monthly income to a down payment and a mortgage at this point in your life. Do you want to go on a trip or study?
You’ll have more freedom this way.
Renting allows you to be more flexible. In the event that your lease is up, you are free to move out of your current residence and into a new one. Because buying and selling a home entails such high expenses, your options for moving residences are limited.
Allows you to diversify your financial portfolio.
All of your savings, especially if you’re a first-time buyer, will likely go towards one large purchase. What percentage of your savings, if any, do you consider to be “safe” if invested solely in one place? Renting gives you the flexibility to put your money to work in a variety of ways. Investing in a variety of different assets allows you to lessen your exposure to a single source of risk.
THE DRAWBACKS OF RENTING
In some cases, renting may be more expensive than purchasing.
Inflation and rising property values are likely to drive up the cost of renting steadily in the future, based on past experience. Mortgage payments may be higher than rent at the beginning of the loan, but as the principal is paid off, the interest charged decreases.
It’s not uncommon for people to pay off their home loans in fewer than 30 years. In spite of the fact that they’ll still have to pay for home repairs and council fees, they’ll be free from the burden of large monthly mortgage payments. You’ll always have to pay rent if you live in a rented home. It may be difficult to come up with a large sum of money each month once you retire and your income drops. As a result, you may be unable to absorb rent rises.
There will be no compulsion to save.
A mortgage is a lot like being compelled to save money. Every month, you have to put money towards an asset that is likely to appreciate in value over time: your mortgage. When you’re renting, it’s easy to spend your money instead of saving or investing it.
No security or freedom of customization
The landlord has the right to terminate the lease at any time, forcing you to relocate. You also can’t decorate or make any significant changes without permission.
THE ADVANTAGES OF PURCHASING A HOME
It provides you with a sense of security as well as independence.
Purchasing a home gives you peace of mind because you won’t have to worry about being evicted by a landlord. The length of time a tenant can live in a rental property after the end of their lease is completely out of their hands. Owning your own home gives you the freedom to do whatever you want with it in terms of remodeling and interior design.
A steady rise in the value of homes
Having a financial asset that has the potential to appreciate in value is enticing. The long-term trend of rising house prices can be interrupted by periods of stagnation or even a decline in value. Owning a home should be viewed as a long-term investment.
Your home’s equity can be put to good use.
The amount of your home’s value that you actually own as equity. As you pay down your debt, your equity will rise in proportion to the value of your home. With the equity, you can then put money into an investment like a mutual fund or stock.
THE DRAWBACKS OF HOMEOWNERSHIP
You’ll have to pay interest.
Over the course of a loan, the amount you pay in interest and other fees can add up. If you have a variable interest rate or a fixed rate period expires, be prepared for interest rates to fluctuate throughout the term of your loan.
There is a trade-off.
To have your money locked up in real estate when you could have used it or invested it elsewhere is what economists call the “opportunity cost.” If you choose a life of renting, you’ll have the money you would have saved for a deposit and mortgage payments to spend elsewhere. This might be for travel, study, entertainment or your own business. It could also be used for other investments that potentially could yield greater or quicker returns than a residential property.
Owning a home entails more than just a down payment and monthly mortgage payments.
The cost of buying and selling a house isn’t small change for the average person. The Reserve Bank of Australia opens in new window estimates that selling a home costs about 4% of the final sales price. Stamp duty, government fees, conveyancing costs, and loan establishment fees account for about 6% of the total purchase price of a home. Other expenses include council fees, maintenance, repairs, depreciation of the property and body corporate fees as well as water and insurance charges. Saving for a deposit isn’t the only goal.
THE BEST OPTION FOR YOU IS TO DO YOUR OWN MATH AND SEE WHAT YOUR OPTIONS ARE.
Decisions about whether to buy or rent a home aren’t easy. There are a slew of variables to take into account, such as your financial situation, way of life, family obligations, investment objectives, and risk tolerance. It’s a good idea to do some research and talk to an expert. Talk to one of our experts to help you make a decision.
