When searching for a place to call home, one of the biggest decisions Canadians face is whether to rent or buy. The choice isn't easy, as it carries profound implications for your financial future and overall quality of life.
The rising cost of living, including rising interest rates, isn't making the decision any simpler. Both renting and buying come with distinct advantages and drawbacks, and understanding these is crucial in making an informed decision.
Whether you live alone, with family, or are planning to start a family, there are some considerations to keep in mind. Renting in Canada may offer more flexibility while buying a home might provide greater stability and financial security. Knowing what best suits your lifestyle and financial situation is the key to making the right decision.
But, if you're stuck at the crossroads of renting or buying, iCash, Canada’s leading lender for online loans, explores the pros and cons to help you determine the path that best aligns with your financial goals and lifestyle.
Pros and Cons of Renting in Canada
If you ask a renter why they choose to rent, the most common answer is that it’s more affordable than buying. Though renting often means dealing with higher monthly costs over extended periods of time, it can also give you a chance to "try before you buy."
The Pros of Renting
No large down payment or long term commitment is required.
Flexibility to move without any hassle.
Lower upfront costs i.e. deposits, commissions, and closing costs.
Low maintenance requirements with the landlord taking care of most repairs and general property upkeep.
Many rental properties present a variety of amenities such as parking, gym access, swimming pools, etc.
No need to front money for emergency repairs or major home renovations.
The Cons of Renting
Limited control over how you can use your living space due to the rental agreement restrictions set by landlords.
No equity build-up (only paying off the landlord's mortgage).
You may be faced with rent increases, which can be difficult to budget for.
If your landlord decides to sell their property, you may have to move on short notice.
Pros and Cons of Buying in Canada
Most Canadians view homeownership as a sign of success and stability, which is why it’s often seen as the ideal living situation. While buying property may come with additional responsibilities such as taxes, maintenance, insurance, etc., it can also bring numerous benefits to those who choose to purchase.
The Pros of Buying
Equity build-up from paying off your own mortgage, which can be used as an investment strategy.
You may be eligible for various homeowner tax benefits set out by the government.
The value of your property may increase over time, providing you with a larger financial return when it's time to sell.
Since it's your property, you can transform the house according to your personal style and preferences with no restrictions from a landlord.
Your own home means a place to settle down and enjoy with your loved ones.
The Cons of Buying
Large upfront costs are required, such as a down payment and closing costs.
You may be responsible for any emergency home repairs or major renovations needed on the property.
Owning a home comes with added expenses, such as home insurance, property taxes, and other utilities.
The value of your house may decrease due to market conditions, leaving you with less than what you initially paid for it.
You may also need to relocate, forcing you to sell or rent the property with little time and minimal profits.
Owning a home is a long-term commitment, so you'll want to make sure you're ready to stay in one place for an extended period.
Lifestyle Factors to Consider
When deciding whether to rent or buy a home, take your lifestyle and personal preferences into account. Below, we've listed some lifestyle factors to consider when making your decision:
How long do you plan to stay in one place?
Do you have enough money saved for the upfront costs associated with owning a home, such as closing fees and down payments?
How stable is your employment situation?
How much time and energy do you have to commit to home maintenance and repairs?
Do you prefer the freedom of renting or the stability of owning a home?
Are there any other lifestyle factors that could influence your decision? For example, do you like to decorate, garden, or do you have pets that will be living in the home?
When to Rent
There are some key lifestyle factors that can indicate you're not quite ready to purchase a home. If you're single and plan to move frequently for work or personal reasons, renting may be the best option. Renting also makes sense if you don't have enough money saved for a down payment, have a poor credit score that could prevent you from qualifying for a mortgage, or if the property taxes in your area are very high.
When to Buy
If your lifestyle better suits owning a home, buying may be the right choice. If you plan to stay in one place for an extended period of time and have already saved the funds needed to cover closing costs and down payments, buying may be more financially feasible than renting long term.
Having a steady income stream is also important when considering purchasing a home. If you're in a position to acquire a mortgage and make your monthly payments on time, buying can be an excellent option - especially if property values are increasing steadily in the area where you plan to buy.
Ultimately, weigh all your options and carefully consider what lifestyle factors go best with renting and what factors go best with buying. Doing this will ensure that you make the right decision for your needs and circumstances.
The Housing Market in Canada
When deciding whether to rent or buy, you'll want to know what the current housing market looks like. Unfortunately for potential home buyers, the mortgage interest rates in Canada keep rising with the most current rate at 4.63% in June 2023. This means that your mortgage payments could be more expensive if you choose to buy a home at this time.
The higher mortgage rates could also mean that some potential buyers may not be able to qualify for a loan. Even homeowners that are due for mortgage renewals or those who have variable-rate mortgages may be affected by the rising costs.
Meanwhile, the rental demand in Canada is still high due to immigration and job opportunities, but high prices remain a concern in many areas. The average rent for a one-bedroom apartment in Canada continues to rise.
Depending on where you live, it may cost more than the average to secure a place to rent. You can view a rental price comparison by Canadian city to better understand the costs and to find the most affordable city to live in.
Legal Rights, Obligations, and Regulations for Renters and Homeowners
Understanding how you're protected as both a homeowner and a renter is crucial in making informed housing choices. As a renter in Canada, you're protected by the law. Each province and territory has Landlord and Tenant legislation that sets the rules and regulations for renting.
Knowing your rental rights and legal obligations will ensure that you're in compliance with all laws and that you are protected from any mistreatment or fraud.
Homeowners also have legal rights and obligations when it comes to their housing situation. On top of monthly mortgage payments, homeowners are also responsible for the upkeep and maintenance of their homes. They are also responsible for property taxes, insurance, utility bills, and other fees associated with their home ownership.
Violations of laws such as zoning or building codes can result in significant fines or lawsuits that could put homeowners at risk financially, or worse, result in the loss of their home.
Financial Considerations for Renters and Homeowners
The financial implications are arguably the most important aspect of choosing between renting and buying. The cost associated with owning a home is typically higher than with renting. Even if you've hit your breakeven point and can make money off of your investments, there are still other costs to consider.
You should also consider the 40% rule, which is when your housing costs (rent or mortgage, taxes, insurance) exceed 40% of your pre-tax income. Beyond this threshold, you may find yourself in a financially challenging situation.
What is Best for Your Financial Situation?
If you're still unsure what financial situation is the most suitable for you, consult a financial advisor to discuss your options in more detail. By seeking professional help, you’ll gain greater insight and guidance on managing your finances.
For quick reference, here's a brief financial comparison below of the costs associated with renting and owning a home:
Renting
Monthly rent payments, which may be negotiable depending on the arrangement you've made with your landlord.
Security deposit.
Utilities (e.g. water, gas, electricity).
Other fees as outlined in the rental agreement.
Homeownership
Down payment for mortgage loan can range from 5% - 20% of the purchase price.
Closing costs, which are generally between 1.5%-5%, and include lawyer fees, appraisal fees, and more.
Property taxes.
Home insurance (roughly $100 per month).
Maintenance fees, which range from 1% - 4% of your home's value.
Utilities (e.g. water, gas, electricity).
Other fees as outlined in the homeowner agreement (if applicable).
Costs associated with emergency repairs or renovations.
Need Quick Cash for Home Expenses? Choose iCash
Whether you’ve decided to rent or buy, there are times when you may need extra cash to cover home expenses. As one of Canada’s leading online lenders, iCash offers fast and secure loans of up to $1,500, so you can be better prepared for anything life throws your way. You can get funded in minutes online or through the iCash mobile app, regardless of your credit history or current financial situation.
