Mario Toneguzzi: Buy or rent a home – what’s the best choice?It’s the million-dollar question many Canadians will face.

Should I buy or rent a home?

Well a new report by Mortgage Professionals Canada suggests homeownership is an affordable alternative as rent costs rise.

“The report demonstrates that the money Canadians are spending on monthly rent, if used instead to finance a home, would be a very beneficial investment over time,” said Will Dunning, the organization’s chief economist and author of the report, Owning versus Renting a Home in Canada.

“The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of homeownership – the mortgage payment – typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership.

“Everyone wants to save for their future, but rising costs, including rent, are making that more difficult. The lower lifetime costs of homeownership mean that owners have more ability to save for retirement than do renters. The financial benefits of homeownership go beyond equity accumulation.”

The report found that the monthly cost of homeownership is lower than the cost of renting equivalent housing in the majority of cases today, and becomes even more cost effective over time.

The study examined 266 scenarios.

It compared the costs of renting five and 10 years in the future. It finds that if mortgage rates remain at 3.25 per cent, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting for almost 98 per cent of cases. On average, the net cost of owning will be $1,295 less than the monthly cost of renting equivalent dwellings. If the interest rate rises to 4.25 per cent after 10 years, the cost of ownership is less than the cost of renting in 92 per cent of case studies, with an average saving of $1,014 per month.

Even if the interest rate rises to 5.25 per cent – which would be two full percentage points above current typical mortgage interest rates – in 10 years homeownership will be less expensive than renting in 82 per cent of the cases, by an average of $726 per month.

“Using conservative expectations for rental increases over time, there is a clear financial benefit of owning versus renting,” said Paul Taylor, President and CEO of Mortgage Professionals Canada.

“While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term. Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership. Our collective long-term economic success may be compromised without that support.”

Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.

Buy or rent a home – what’s the best choice?

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