Menu Toggle
Search
  1. Home
  2. Mortgages
  3. Should You Rent or Buy?
Published August 24, 2021

Should You Rent or Buy?

Buying a home means more control and the ability to build equity. Renting is more flexible and might be cheaper. The best option depends on your personal circumstance and goals.

There’s a common belief that renting is throwing away money. Since you’re paying someone else’s mortgage, you’d be better off buying and building equity for yourself, the argument goes. While this may be true in some cases, the numbers don’t always add up.

The buy-or-rent question requires careful consideration as it can have a sizable impact on your life.

The pros and cons of buying a home

Buying a home is a significant decision that requires a commitment and some level of financial independence. While it’s tempting to jump into the real estate market since prices have steadily increased in Canada, you still need to consider the pros and cons of buying a home.

» MORE: What is real estate?

Pros of buying a home

  • You build equity. With every mortgage payment, a portion goes toward equity.
  • Stability. You don’t need to worry about any increases in rent or being forced to move.
  • Full control. You get to decide how your home looks since you’re the owner.
  • Forced savings. Your mortgage payments build equity, so you’re always saving.

Cons of buying a home

  • High upfront costs. Not only do you need to come up with a down payment, but there will also be closing costs required.
  • Less mobility. You can’t easily pick up everything and move when you own a home.
  • You’re responsible for all maintenance. You have to take care of all the maintenance, including the costs.
  • Building equity can be slow. Rising real estate prices are not a guarantee. It can take many years before the value of your home increases.

» MORE: How a mortgage works in Canada

The pros and cons of renting a home

Many people choose to rent for lifestyle or financial reasons. While others may not agree with this choice, there’s no denying that renting does come with plenty of benefits. If you’re not sure if renting is for you, consider the advantages and disadvantages.

Pros of renting a home

  • Flexibility. You have much more flexibility compared to owning. You can pack up your things and move whenever your lease is up.
  • It may be cheaper. You don’t need to worry about maintenance costs, property taxes or mortgage payments.
  • Less maintenance. Your landlord is responsible for most of the maintenance and repairs.
  • Increased cash flow. The money you save from renting can be used for other things, such as investments, saving for your child’s education or vacations.

Cons of renting a home

  • No equity built. Your rent payments don’t build equity or help grow your net worth.
  • Your costs could rise. Landlords can increase the amount you pay in rent every year.
  • Nothing is guaranteed. Even though your landlord is responsible for maintenance, they may be slow to address any issues that you bring up.
  • You could be evicted. There’s always a chance that your lease won’t be renewed, or you’re evicted for another reason.
Best Mortgage Rates in Canada

Compare Canada’s top mortgage lenders and brokers side-by-side and find out the best mortgage rates that will meet your need

Ad Icon

The cost of buying vs. the cost of renting

Many people who debate the cost of buying vs. renting will often look at a mortgage vs. rent. The argument is that if your monthly mortgage is similar to renting, you’re better off buying so you can start building equity. While that’s a quick way of looking at things, there are other factors to consider.

Rent is an unrecoverable cost, but owning a home also has expenses that don’t build you equity. For example, property taxes and maintenance will typically run you about 1 per cent of the value of your home each year. There’s also mortgage interest and the cost of long-term repairs that need to be factored in. As an owner, you may have less discretionary funds available than renters, which is an opportunity cost. Renters can invest the money they’ve saved and potentially get higher gains compared to owning real estate.

For many people, the decision comes down to affordability. As a general rule, no more than 32% of your gross annual income should go towards housing-related expenses. This is known as your gross debt service (GDS) ratio. Another ratio used is the total debt service (TDS) ratio, where your housing expenses and any other outstanding debt shouldn’t exceed 40% of your gross annual income.

» MORE: How much mortgage can I afford?

How to decide what is right for you

Since buying a home is a major decision, you need to ask yourself a few questions to determine if you’re ready to own a home:

  • Do I have a down payment and steady income?
  • Will I be able to handle the mortgage payments?
  • Do I qualify for government programs such as the Home Buyers’ Plan and the First-Time Home Buyer Incentive?
  • What are my current and future housing needs?
  • Can I handle the ongoing maintenance?
  • Am I ready to commit to such a large purchase?

Once you’ve answered the above questions and considered the pros and cons, you’ll have a better idea about whether you should buy or rent.

» FIRST-TIME HOME BUYER? Check out our guide

About the Author

Barry Choi

Barry Choi is a personal finance and travel expert. His website moneywehave.com is one of Canada's most trusted sites when it comes to all things related to money and travel.

Read More
DIVE EVEN DEEPER
How to Save Money in 8 Easy Steps

How to Save Money in 8 Easy Steps

1. Create a budget The first thing you need to do is figure out how much money you’re working with: what you’re spending, where it’s going and how much you’re actually making. In other words, you need to make a budget. Find out how much money you take home after taxes. Then, tally up all […]

What Is Home Equity?

What Is Home Equity?

Home equity is the value of the ownership stake you’ve built up in a home that you own. In simple terms, it’s the difference between the value of your home and how much debt you have remaining on your mortgage. Building home equity can be done in two ways: Paying down your mortgage Increasing your […]

What Is the Minimum Credit Score for a Mortgage in Canada?

What Is the Minimum Credit Score for a Mortgage in Canada?

While most Canadians do their best to save up a large sum for a down payment, the vast majority need to rely on a mortgage to be able to buy a new home. However, whether you are approved for a mortgage and what kind of rates you get depend on your financial health, including your […]

Can I Pay Rent With a Credit Card?

Can I Pay Rent With a Credit Card?

Using a credit card to pay your rent has its advantages. For starters, you don’t have to go through the trouble of writing a paper cheque and waiting for it to be cashed. Plus, it gives you flexibility. If your rent is due before payday, you can cover the expense with your card and pay […]

Back To Top