Are you wondering if you’re ready to:
> Stop Renting
> Find a House
> Earn Equity
In this analysis, you will see the difference between renting and owning a home.
Your friends and family will say it’s better own a home and earn equity versus throwing your money away by renting
It’s not that simple.
There are other variables to think about if you’re deciding to rent or own. These include condo fees, HOA fees, interest rates, the length of the mortgage and principal earned versus interest paid.
That most important variable might be equity earned versus interest paid during the same time as you’re paying rent. If you’re paying more interest, then you are renting then it probably is better to rent.
However, if you’re paying if it’s the opposite then you’re better to buy the house. Only now home has all kinds of additional benefits like the pride of ownership and holding as a very significant sized asset. His article is about the financials behind the old question; should I buy or Rent a home?
Here are the assumptions made:
- fixed interest rate of 5%. That’s a complexly imaginary rate but used for this example
- 1500 square foot single family house with a value of $400,000
- $25,000 down payment
- rental rate for that house will be $2,000.
- amortization of the mortgage is 25 years
- Inflation 4%
- Home value increase 3%/year
Again, these are just assumptions to illustrate and decide what could be better between owning a house and renting a house in Edmonton.
Source:
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
Rent vs. Buy
Should you rent or should you buy your home? It takes more than looking at your mortgage payment to answer this question. The first steps in buying a house are ensuring you can afford to place at least 5% of the purchase price of the home as a down payment and determining your budget. This calculator helps you weed through the fees, taxes, and monthly payments to help you make a good financial decision.
Your home purchase breaks even in approximately 1.9 years.
This is based on your home’s equity minus a 6% sales commission paid to brokers or real estate agents when you sell your home. It also assumes your home will appreciate at 3% per year and that the rate of interest over the amortization period will not change. If you cannot remain in your home for at least 1.9 years you should consider continuing to rent.
Home Equity vs. Investment
We calculated your break-even point by examining how long it would take to create enough equity in your home to exceed the value of investing your cash on hand. We also accounted for differences in your monthly rent and house payments. If your rent payment is less than your net house payment, we add that monthly savings to your investment. If your house payment is less than your rent payment we subtract that amount from your investment. You may notice that on the schedule at the bottom of this report the investment value can be reported as negative. This happens if your house payment is significantly lower than your rent payment. It illustrates that if you continue to rent the extra cost of renting would, in effect, use up your cash on hand.
Results are based on: (i) the assumption that the rate of interest does not change from the current rate for the entire amortization period, (ii) other assumptions, such as the heating costs for your home, and (iii) information that you provided. We do not guarantee the calculations. Some restrictions may apply.
Estimated Loan Information
With a total payment of $2,466.00 per month and a down payment of $24,000* you could purchase a home with a price of $400,000. This is for a 25 year mortgage at 5% in the amount of $376,000. Total closing costs for this loan are estimated at $1,000.00.
Your current monthly rent is $2,000. The expected inflation rate of 4% annually was used to estimate future rent. The rate of return for investments was entered at 2% after taxes.
Monthly Payment Breakdown
*There is a required minimum down payment of 5% for homes with a purchase price of $0 to $500,000. For amounts over $500,000 an additional 10% down payment is required for each dollar over $500,000. For amounts over $1,000,000 a 20% down payment is required. The down payment does not include mortgage insurance, which may be financed. For a purchase price of $400,000, the minimum required down payment is $20,000.
**This amount is financed in your mortgage. Mortgage insurance is NOT included in these results since you did not check the ‘Mortgage Insurance Required’ box. If mortgage insurance is required by your Financial Institution, the cost would be $15,040.00.
*** Existing homes are not subject to GST or HST. Some new homes have the purchase price with GST and/or HST/PST included. If this is the case for your home purchase, the checkbox to include HST/GST should be left unchecked since the GST and/or HST/PST will be included in the purchase price. It is important to be aware that there may be additional taxes on new home purchases depending on the province where the purchase is made. These additional taxes are not included in this analysis.
Analysis of Future Payments
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.
Get your personalized analysis, no charge, no commitment. We just want you to be informed.