By BDO First Call Debt Solutions

By Jasmin Brown - Licensed Insolvency Trustee

How to Decide Whether You Should Rent or Buy

Jun 11, 2019 | 11:34 AM

Rent or buy? It is the great debate for young Canadians wondering if they should jump into the housing market. When is the right time to buy a house? For first-time homebuyers, that question can be difficult to answer. Even in a relatively stable housing market, there are still ongoing challenges for Canadians in their 20s and 30s.

One of these challenges concerns student debt. According to the Canada Student Loan program, it takes nine to 15 years for graduates to pay off their government loan — which means that some Canadians are paying off student debt well into their 30s.

In addition, student loans might not be the only kind of debt you are carrying. If you are also making monthly payments on a credit card balance, a car loan and/or a line-of-credit, you may be wondering: Am I better off renting a home instead of buying?

Let’s discuss the pros and cons of each, mainly focusing on your bottom line and your ability to reduce debt.

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The pros of renting:

Renting makes sense if you have not yet saved enough to make a substantial down payment on a house. You can buy a home with a five per cent down payment, but new mortgage stress tests in Canada are required for anyone who will make less than a 20 per cent down payment. The stress test can limit the amount of debt available to borrowers.

It’s not just the upfront costs either. Being a homeowner can be expensive. Property taxes and home insurance are just the tip of the iceberg. Utilities, maintenance costs and necessary upgrades also affect the affordability of home ownership. Most of these costs rarely affect renters, as many of the necessary utilities, such as heat and water, are often paid by the owner.

Renting is a good option if you need or want to be free to relocate, whether for your job or any another reason. Maybe you are in a term position and will need to move to a larger urban centre for your next job. In that case, jumping from rental to rental is far easier than selling a home.

The pros of buying:

If you already have a healthy down payment set aside and your budget can handle the additional costs, owning a home can offer stability and asset appreciation over time. While homes are costly to maintain, you may get additional value as you stay.

Thinking long-term, once your mortgage is paid off, owning a home also means you will be able to put a stronger focus on long-term financial goals such as retirement. Without a mortgage payment (or rent), you will have more monthly income to dedicate to retirement savings later in life.

The decision may be difficult even after reviewing the pros and cons. The bottom line is that it is important to balance your rent-vs-buy decision with the other financial obligations in your life. If necessary, you may wish to rent while you work on increasing your down payment and reducing your student or other personal debt. If you balance your financial obligations before you decide to buy, you will be less likely to find yourself “house poor.”