It’s kind of a rite of passage, is it not? When you buy your first home, it’s like you’ve all-of-a-sudden become an adult?
It’s a stupid analogy, really. There are many pros and cons to buying a roof over your head.
The biggest question has got to be this: Are you just throwing away your hard earned money when renting? Are you subsidizing your landlord’s kid in college?
Rent is better, right? There’s one price to pay each month – and maybe a bit of utilities – but overall it’s a nice neat round number to pay. With a home, you’re paying property taxes, maintenance, property and mortgage insurance, and then those stupid utilities. At the end of the month, who is better off? The renter or owner?
Here’s the deal. The money you pay for rent is gone once that cheque is cashed. You have no further gain to be had. Your net worth doesn’t improve. The landlord’s kid is now backpacking around Europe on your dime.
In paying your mortgage, you’re net worth climbs. But there’s downfalls to the ownership of a property. There is the cost of the house to consider. And the mortgage fees, CMHC payment (if less than a 20% down payment), land transfer fees, home inspection, lawyer fees, etc. I’m sure you get the point.
So Rick, you might ask, what is the outcome?
True home ownership really does have a ton of extra costs. I can tell you that when I was renting, I had more money left at the end of the month than I do today, with the mortgage. But I didn’t invest wisely when that roof over my head was cheapest. Stupid me.
A really good Canadian money blog that I love to read, Boomer & Echo, breaks down the math and puts it out for you to study. They can show that in many cases, renting is more cost friendly for the guy that is mortgage-free for 25 years, given that he invests that extra monthly.
Sadly, I haven’t proven with any benefit of the doubt, that one scenario is better than the other, despite you paying off the landlord’s new cottage. All I can offer is for you to have a good financial adviser who can guide you through both scenarios. Be wise with that money, starting right now.