By Pamela Eadie, Ottawa Citizen, February 6, 2010
Interest rates are still at an all-time low, so naturally you should be telling your landlord goodbye and saying hello to your dream home, right?
Not so fast, says Trystan Andrews, sales representative with Prudential Town Centre Realty Inc. He acknowledges that of course owning your own home has a number of benefits.
But, Andrews asks, is the dream of homeownership really one you should pursue?
There’s no easy answer. It all depends on your circumstance and needs.
Buying a home is a large investment, possibly the largest purchase anyone will ever make. Careful deliberation is necessary when deciding what option is best for you: buying a home, or continuing to rent.
"The advantage to renting is that your monthly costs are fixed. There’s little to no responsibility for maintenance of the property. And, it’s easier to pick up and move to another location," he says. However, the disadvantages include rent increases each year and there are always risks that the property will be sold, jeopardizing your continued tenancy, or that bad neighbours will move in upstairs or across the hall. "Probably the strongest argument is that renters don’t earn any equity from paying rent."
As a homeowner, you have the benefit of security and stability, as well as the freedom to decorate and remodel. The owner builds equity on the property as the mortgage payments are made.
"However, when the furnace breaks down or the roof needs replacing, the repairs are your financial responsibility. And there is always the possibility of losing on your investment if property values go down," he says.
It’s also important to take a good hard look at whether or not you can really afford homeownership. It may not be wise to have the added pressure of maintenance costs, property taxes, and insurance if you’re on a limited budget. If you have poor credit, or a high debt-to-earnings ratio, now may not be the time to purchase a home. You might be better off taking an appropriate amount of time to build your credit score, decrease your debt, and save for a down payment.
In addition to costs, another factor to consider is how long you plan to reside in the home. "When you purchase a home, there is a substantial initial investment, including the down payment, closing costs, and renovations. It typically takes between five and seven years to recover your initial costs. Depending on your loan payments, it may take a few years before you begin to see a return on your investment," Andrews explains.
Your lifestyle also has an impact on the decision of whether renting or buying is the best option. Will you be able to afford the type of property you want, and continue to enjoy the lifestyle you have?
In Ottawa, for example, the cost of renting downtown tends to be lower than buying, so you might have to be prepared to move outside of the core. You should also consider whether you are starting or changing careers. If your job requires you to move or travel frequently, is owning a home the best option? Not necessarily.
Although homeownership has its benefits, carefully consider your financial and personal situation to make sure it’s the right fit for you.