Is rent really dead money or are you better off buying?



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October 5, 2010

It can be difficult to gauge if you will be better off buying or renting. For some people buying a home is simply not an option, but for those that can afford it, it is worth looking into both options.

RateCity compared the difference between the average rental prices (Australian Property Monitors (APM)) with the average mortgage repayments in Australia’s five capital cities based on the current average standard variable rate of 7.05 percent for a 25-year loan term (Australian Bureau of Statistics state data and RateCity calculations).

Sydney

  • Average rent for a house: $480 per week ($1920 per month)
  • Average mortgage: $312,600. Repayments: $2219 per month
  • Difference: $299 cheaper to rent per month

Melbourne

  • Average rent for a house: $365 per week ($1460 per month)
  • Average mortgage: $296,300. Repayments: $2104 per month
  • Difference: $644 cheaper to rent per month

Brisbane

  • Average rent for a house: $360 per week ($1440 per month)
  • Average mortgage: $278,800. Repayments: $1979 per month
  • Difference: $539 cheaper to rent per month

Adelaide

  • Average rent for a house: $325 per week ($1300 per month)
  • Average mortgage: $230,800. Repayments: $1639 per month
  • Difference: $5339 cheaper to rent per month

Perth

  • Average rent for a house: $370 per week ($1480 per month)
  • Average mortgage: $283,600. Repayments: $2013 per month
  • Difference: $533 cheaper to rent per month

National average based on the above:

  • Average rent for a house: $380 per week ($1520 per month)
  • Average mortgage: $280,420. Repayments: $1991 per month
  • Difference: $471 cheaper to rent per month

As you can see, the price you pay to buy a home outweighs the cost to rent. But what if your house increases in value? According to APM, the median house price in Sydney increased by 13 percent year-on-year in June 2010. Melbourne’s median house price increased by about 28 percent.

Let’s say house prices increase by 10 percent over the next five years. Using APM’s median national house price of $558,540, it would be worth $614,394. You would have paid $119,460 in mortgage repayments compared to if you were renting you would have spent $91,200 if rents don’t rise (using the above national scenario). That means you would have made about $28,000 in five years by choosing a mortgage over renting.

Renting is short-term and buying long-term
The important thing to remember is that the money spent towards paying off your mortgage is actually paying down a debt. So each repayment is one step closer to owning your own home. When you rent, you are paying off someone else’s mortgage and the only person who has something to show for it is your landlord.

At the end of the day there are positives and negatives for both options. There are also additional costs that you need to factor in when buying property such as maintenance, stamp duty, and lenders mortgage insurance. If you think buying a home is the right choice for you, compare home loans online to find a loan with a lower interest rate to keep your repayments down.

 

 

 

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