Should you buy or rent your home?


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administrator

Oct 12, 2010( 4 min read )

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Deciding whether to rent or buy is a conundrum many people agonise over. Ask a bunch of people and you will get a different opinion from each one of them. So when there is such conflicting opinions and ideas surrounding the old rent vs. buy debate, how do you decide?

Ultimately it’s your personal and financial circumstances that will help you chose one over the other but there are a few things you should consider from a financial point of view before decide.

The pros and cons of renting and buying

To determine whether you will be better off buying or renting will depend on a number of factors such as your affordability, the price to rent and more. However, if you can afford to purchase a property, it may be worth your while considering both options.

For instance, RateCity compared the difference between the average rental prices with the average mortgage repayments based on five capital cities (Sydney, Melbourne, Perth, Adelaide and Brisbane) in Australia, and based them on the average standard variable rate of 7.05 percent for a 25-year loan term.

The results showed that the national average to rent a house at July 2010 was $1,520 per month. While the average mortgage repayments were $1,991 per month, showing that it was cheaper to rent by $471 each month.

While some instances, such as the example above, it may be cheaper to rent you should also consider that if you bought a house, would you be better off if it increased in value?

For instance, if the price of your home increased by 10 percent over the next five years and your house was valued at $500,000 it would be worth $550,000. Based on the national average figures above, you would have paid $119,460 in mortgage repayments compared to if you were renting you would have spent $91,200 if rents didn’t rise. That means you would have made about $28,000 in five years by choosing a home loan over renting.

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.

Here are a few points to consider in your rent versus buy debate;

Buying

  • Are you undisciplined? Buying a home acts as a forced savings.
  • Buying could be the start of your wealth accumulation.
  • If you want to paint your walls green – you can!
  • Once your mortgage is locked in you can reasonably budget for your monthly repayments as they won’t change all that much. Your landlord can’t put the rent up on you either.
  • It will give you a sense of stability. It’s your home so you can’t be kicked out or forced to move.

Renting

  • Home loan repayments are usually more costly so when you rent you will have more money in your pocket to spend on other things.
  • Carefree living. The plumbing broke? Your blinds need replacing? No problems, as that is all taken care of by the landlord, including rates and insurance.
  • Are you a floater? Is your family growing? If you like moving around then renting could be ideal for you. At the end of a 6 month lease you will be free to move onto wherever you like. Also, if your family is increasing and you need more room you can easily rent a larger place without having to buy a new home.
  • As monthly rent is still generally cheaper than monthly mortgage repayments, this will open up more options when it comes to deciding where to live and the size of your home or unit.

At the end of the day there are positives and negatives when it comes to renting versus buying property. 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.

Need help calculating what your monthly home loan repayments would be? Use the RateCity mortgage repayment calculator to help you decided if buying is an option for you.

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