Housing affordability is a huge issue for many Australians. Working out whether to jump onto the property ladder or continue renting can be a confusing decision. In our article below, we go through some of the pros and cons of both options to help you make an informed decision, plus provide you with a handy calculator to work out the costs of Buying Vs Renting.
By choosing to rent rather than to buy your home, you’re not spending your hard-earned savings on a home deposit. Plus you are not up for the costs associated with buying a home. You’re freeing up money to spend or invest elsewhere as you see fit. Depending on where you invest the money, you may actually get a greater return on investment than if you’d bought a house.
Renting gives you the flexibility to move on relatively short notice. As a tenant you can freely relocate from home to home and area to area once your lease expires. The significant costs associated with buying and selling means that you have less flexibility when you want to move to a new house.
Buying a home, especially for first home buyers, often means that all your eggs are in one basket. Do you feel comfortable with most, if not all, of your savings tied up in a single investment? Is this a good investment strategy for you? Renting allows you to use your savings across a broad range of investments. By diversifying your investments, you’re also spreading out any potential risk in the investment market of your choice.
If history is a past indicator, the cost of renting will steadily increase over the years due to inflation and rise in property prices. Depending on where you live, your mortgage repayments may initially be higher than the cost of renting, but over the life of the home loan, the interest charged reduces as the principal is paid off.
Many people pay off their mortgage in under 30 years. Sure, they’ll still have ongoing home maintenance and council rates to pay for, but at some point they’ll be free of the home loan repayments needed to live in their home. If you choose a life of tenancy, you’ll always have rental payments, property inspections and the like. Once you hit retirement and your income reduces, it may be difficult to find a large sum of money each month as you try and absorb rent increases.
A mortgage is like forced savings. You’re obligated to pay your mortgage every month putting money towards an asset that could potentially increase over time. But with renting, it can be tempting to spend spare cash rather than saving or investing it.
Buying a home provides you with certainty; there’s no risk that you’ll be displaced by a landlord. Tenants have very little say in how long they can occupy a rental property beyond the lease term. Living in your own home also allows you the freedom to renovate and decorate your home to improve its value and provide yourself with perhaps a better overall return on investment over time.
Having an asset that may increase in value over time is appealing. While traditionally house prices have consistently risen over the long-term, they can also have periods of weak growth or even fall in value. You need to remember that home ownership is a long term investment strategy and the timing of the choices that you make about entering and exiting the housing market can have a big impact on your investment return.
Home equity is the difference between what your home is worth and what you owe on your home loan. Provided that the value of your house is increasing, as you pay off your loan, your equity will also be increasing. You may then be able to use the equity to fund an investment such as shares, a managed fund or even an investment property.
The interest and fees you pay over the life of a home loan can be significant. Before making a decision on getting a home loan, speak with a qualified Finance Broker about what your options may look like and what you’ll be up for. Be prepared for interest rates to fluctuate during the term of your loan, especially if you have a variable interest rate or when your fixed rate period expires. When this happens, having someone in your corner that deals with the lenders on a day to day basis also makes sense to ensure that you are getting the very best home loan deal that is on the market today.
According to the Reserve Bank of Australia, it costs about 4% of the sale price of your home to sell (agents fees, advertising) and about 6% of the purchase cost to buy (stamp duty, government fees, conveyancing costs, loan establishment fees). Not to mention the ongoing running costs of owning a property including council rates, repairs, depreciation, body corporate fees, water and insurance costs. It’s much more than just saving for your deposit.
As we’ve seen, the case for buying or renting isn’t a simple one. There are many different factors to consider including your financial resources, lifestyle, family needs, investment goals and appetite for risk. Doing research and talking to an expert is a good idea. To assist you with your decision speak with one of our lending specialists.
Use our handy Buying Vs Renting tool to help you work out if you could afford a home loan and what the cost variance may be.
There are a huge number of home loans products and this can make finding the right home loan a very tricky task. Plus, as a home buyer you already have enough on your plate, so taking on the task of researching all the various home loan options and features can be very confusing.
That’s why having an experienced Home Loan Specialist in your corner to help you through the process and ensure that you get the best deal is the way that most people go!
Did you know that last month more than 50% of Australian’s chose to engage a Qualified Home Loan Broker to help them secure the best home loan deal?
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