One has a long-term value proposition, new survey says
For Canadians who can shell out enough for a 20% down payment, it is more financially beneficial to take on a mortgage than to rent over the long term, according to a Royal LePage survey.
This is despite the total monthly costs of ownership being on average higher than renting, Royal LePage said.
“Mortgage payments comprise principal and interest, and the principal component can be seen as a form of saving, albeit forced saving,” Royal LePage said. “While the homeowner has to pay the full amount each month, the principal is not a true cost. What’s more, the interest component is largest in the first month and gradually decreases over the life of the loan, effectively increasing the amount of forced saving each month.”
This characteristic is a major contributing factor to the long-term value proposition of housing, said Karen Yolevski, chief operating officer of Royal LePage Real Estate Services.
"Historically, home ownership has been very profitable for Canadians, many of whom have factored their real estate investments into their retirement planning. Owning a home is widely viewed as a means to save money and build equity,” Yolevski said.
Read more: What are Canada’s best real estate markets for single-income ownership?
In approximately 91% of cases examined by Royal LePage, the net cost of ownership was lower than that of renting, with the difference being $769 per month as of Q2.
“While Canadians do want their homes to appreciate, potential homebuyers will find it reassuring that significant price appreciation is not necessary for ownership to be financially worthwhile,” Yolevski said. “There are other benefits to owning a home, in addition to the financial advantages. Owning a property allows more freedom and stability than renting. As a homeowner, you do not have to worry about the landlord hiking up the rent or forcing you to move. And homeowners have the ability to make a place their own with renovations or decor.”
