Real Estate

Should You Buy A House Or Rent In Canada?

Should You Buy A House Or Rent In Canada?
Written by
  • Ashley Howard
| 5 June 2023
Reviewed, 15 June 2023
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    Are you stuck with the age-old question of whether it’s better to rent or buy a house in Canada? Don’t worry; you’re not alone. With real estate prices climbing steadily year-over-year and rent often more expensive than a monthly mortgage payment, it can be hard to figure out how to choose when it comes to housing. 

    At the same time, buying property involves considerable upfront costs and commitments that don’t come with renting. In this post, we’ll explore both sides of the rent vs buy debate in Canada, making it easier for you to answer the question: is it better to rent or buy?

    Key Takeaways

    • Deciding to rent or buy depends on the type of property you’re looking for, how long you plan to stay, how much you can afford, and a consideration of your future financial goals.
    • Owning a home can provide financial stability, tax benefits, and more control over what you do with the home once you own it.
    • Renting can provide greater flexibility to relocate or live in higher-cost-of-living areas with lower initial costs and minimal maintenance requirements.

    Overview Of The Financial Benefits Of Homeownership:

    Owning a home has many financial and non-financial benefits. Homeownership is often one primary means of accumulating wealth as you age. Recently, Mercer Canada reported that millennials who own a home need to save 5.25 times their salary to have a reasonable income to retire at 65. This is in contrast to millennials who rent. They would need to save 8 times their salary to be ready to retire at 68. 

    Financially owning a home provides stability. When you get a mortgage, people typically choose the term for 5 years, which means if you went with a fixed-rate mortgage, you know exactly how much you will spend on your mortgage for the next 5 years. In a rent-controlled building, your rent could likely increase yearly in line with inflation. Your landlord could increase the amount yearly as they see fit in a building where rent is not controlled.

    Another financial benefit to owning a home is having more control over your habits to save money. In rentals, you have little say over anything installed in the home, which could mean you’re using older, less energy-efficient appliances and heating/cooling units. With homeownership, you’re in the driver’s seat and always have the option to upgrade to newer, more energy-efficient technologies and decrease your utility bills. 

    There are also many non-financial benefits to owning a home. Benefits like knowing you don’t have to stress and worry about being evicted or having your rent skyrocket. Renting could leave you scrambling to find affordable replacement housing on a whim. Not being subject to arbitrary rules – like being told you’re not allowed to paint, hang pictures, being discriminated against for having pets or children, or random inspections by a prying landlord can sometimes far surpass any financial benefits of homeownership. 

    There are also emotional benefits to owning a home, like being connected to a community, building and creating happy memories with your family, passing the home on to the next generation later in life, or choosing to live as a multigenerational family.

    The Potential Drawbacks Of Homeownership:

    Owning a home does have some potential drawbacks. Many ongoing costs come with buying vs renting, like property taxes and higher insurance. There is also ongoing maintenance and the possibility of unexpected costly repairs that you won’t be able to avoid as a homeowner. 

    Additionally, purchasing a home in an area with a high cost of living might mean you need to expand your search for affordability to areas outside the neighbourhoods you could afford to rent. This could leave you living in a less desirable area compared to renting. 

    Homeownership also doesn’t come with any guarantees of affordability. If you were to have a variable-rate mortgage, your monthly payments could increase significantly if interest rates go up, as they have for a third of Canadian mortgage holders. The same is true for fixed rates when your mortgage term ends. At the end of your 5-year term, you could be in for a payment shock if interest rates are considerable. 

    Should You Buy Or Rent?:

    If you’re still stuck wondering, should I rent or buy? The answer isn’t straightforward, and there is no one size fits all approach to answer this question. There are many factors to consider, such as your current financial health, short- and long-term goals, your plan to stay in one place, and the local real estate market. 

    Reasons To Buy A House

    Financial Stability And Investment Opportunity

    A mortgage is considered good debt, and you build up equity with every payment. There are two ways that you’re building equity through homeownership. The first is building it as you pay off more and more of your mortgage, and the second is through the increasing value of your home. Real estate, especially in high-demand areas, is much more likely to appreciate over time than depreciate, making it a relatively safe investment. 

    The equity you build in the home can eventually be leveraged and used to renovate and increase the value of your home, invest in an additional property for investment purposes, or consolidate high-interest debts to become debt free faster. 

    Owning a home increases your net worth since it’s a little like forced savings. Eventually, when you pay off your mortgage, you will own the asset outright that has most likely been increasing in value compared to your original purchase price. If and when you decide to sell, you get back your original investment and any appreciated value. 

    Tax Benefits

    Owning a home does come with some additional tax benefits. For First Time Homebuyers, the RRSP Home Buyer’s Plan (HBP) and the new First Home Savings Account (FHSA) are great options to offset income taxes at tax time. Homeowners can also take advantage of the many other tax benefits available by the Federal and Provincial governments

    Another lesser-known tax benefit to homeownership is the principal residence exemption. When your property increases in value, just like any other investment like stocks, and you sell the investment, this increased value would be considered a capital gain. Typically you would need to pay a capital gain tax on 50% of this profit at tax time. However, if your home is considered your primary residence, you’d be exempted from paying tax on this capital gain through the principal residence exemption when you sell your property.  

    Pride Of Homeownership

    Knowing you’ve worked hard to be in a position to purchase a home gives you a sense of accomplishment. There’s also the sense of pride that comes with caring for your investment and putting in the work to make it your own, decorating and modifying the home to suit your style preferences.  

    Reasons To Rent

    Greater Flexibility And Mobility

    Renting gives you the freedom to live almost anywhere. If you don’t see yourself putting down roots somewhere in the near future, renting might make more sense than buying. Renting allows you to move when needed, either for that great new job opportunity, to explore more areas of a city before selecting a neighbourhood to settle down, or travel the world without being tied to one place. In most cases, renting locks you in for a maximum of one year though short-term renting is also an option, making it much easier to pack up and go whenever you want or need with as little as 60 days’ notice. 

    Lower Initial Costs And Maintenance Requirements

    Most believe that renting is cheaper than owning, which is partially true. Initially, the cost of owning a home is far greater than renting since you need to plan ahead and save up for things like a down payment, closing costs, and other fees you don’t need to consider while renting. Renting comes with the limited initial cost of putting together the first and last month’s rent and moving costs. 

    Homeownership comes with the additional burden of maintenance costs. When you own your home, you are responsible for everything that happens to and within it meaning you could one day be surprised with a hefty repair bill or a special assessment on your condo. Aside from paying for repairs due to damage you cause, all maintenance costs fall on your landlord, leaving you unresponsible for the maintenance and repair when renting. 

    Making The Right Choice For You:

    Making the right choice when it comes to renting vs buying requires considering many factors. Both options have pros and cons, so the choice boils down to your current circumstances and future goals. 

    What Type Of Property Are You Looking For?

    If you want or need a 2 or 3-bedroom house with access to a yard, maybe renting and condo/apartment living won’t appeal to you or your family’s situation. Buying a house might make more sense than renting since the cost of renting or owning a house over an apartment can be significantly higher. 

    It might make more financial sense if condo living and convenience appeals to you to rent in a central location with great amenities, like a pool and fitness centre. Buying may not necessarily be an affordable option in a high-cost-of-living area when factoring in the additional costs of paying a monthly condo fee on top of a mortgage payment. 

    How Long Do You Plan On Staying?

    If your long-term goals don’t include staying in one place for many years, then owning a home may not make the most sense since it’s much harder to sell and relocate than to end a lease and move.  On the other hand, buying may make more sense if you crave stability, are tired of moving from place to place, and can see yourself living in the same area for many years. 

    How Much Can You Afford To Spend?

    If you have your heart set on a specific location, the amount you can afford to spend will play a significant role in your decision to rent or buy. Depending on the location, it may be outside your budget to purchase due to the upfront costs associated with homeownership. Depending on your financial resources, renting might make more sense to get you into your desired location. 

    What Are Your Future Financial Goals?

    Assessing and setting realistic future financial goals will help you achieve them sooner. Maybe you’re investing and saving for a down payment, or you’d rather prioritize a much-deserved vacation or pay for a wedding. In that case, your future financial priorities may not include using your investments and savings for a down payment just yet. 

    Frequently Asked Questions

    What are the costs associated with buying a house in Canada?

    There are many costs associated with buying a home. The biggest one is the down payment. Minimally 5% of your purchase price is needed to secure a mortgage. Other costs include closing costs, appraisal and lawyer fees, land transfer tax, and insurance- which could total upwards of 3.5% of your home’s purchase price.

    What are some benefits of renting instead of buying?

    The benefits of renting include the flexibility to move as often as you wish and explore new cities or countries, no maintenance or upkeep worries, and lower initial costs.

    Are there tax benefits to owning a home?

    Homeownership has multiple tax benefits, including first-time homebuyer benefits and Federal and Provincial tax benefits. The additional benefit of the principal residence exemption saves you the capital gains tax on your principal residence whenever you decide to sell it.

    Final Thoughts

    Deciding to rent or buy is complex, and both options have advantages and disadvantages. Some will prefer the stability and pride of owning a home, while others will prefer the flexibility and lower upfront costs of renting. Ultimately, what matters most is finding a place that best matches your needs and won’t strain your finances. 

    If you’ve weighed the pros and cons of renting vs owning and have decided that buying a home is right for you, it’s important to do your due diligence and further research your options. Compare and save by finding the best rates for your mortgage with Compare Mortgages.