The Cost of Renting a Home in Canada
The cost of renting a home is simple to determine. It’s basically what you pay in rent and utilities. Your landlord takes care of all other costs associated with homeownership and maintenance.
However, it’s also important to understand that renting rather than buying can mean a loss of potential future revenue for you. If you’re not otherwise investing or growing your money for your future, home ownership is a way to do so.
The Cost of Home Ownership in Canada
In the fourth quarter of 2020, the average price of a detached single-family home in Canada was about $700,000. The average price varied greatly across provinces and cities with housing being twice as expensive in Vancouver and much lower in Saint John.
The overall cost of buying and owning a home includes:
- Sale price
- Mortgage rate
- Property taxes
- Home insurance
Home Buying Formula
While it’s important to buy a house you and your family will be happy with, it’s also important to ensure you can afford your mortgage and other payments.
Your monthly income and existing debt and expenses will dictate what you can afford to spend on a house.
As a general rule, you should ensure your housing costs don’t exceed 28% of your gross income.
You should also keep debt payments like credit card and loan payments under 36% of your gross income.
Your mortgage approval will depend on your debt-to-income ratio and will likely be set based on adherence to the 28%/36% rule. Make sure that you can comfortably afford the mortgage calculated – qualifying for it and being able to afford it aren’t always the same thing.
The length of time your mortgage is amortized over will impact the total interest paid and monthly payment amount. A shorter length of time will mean lower interest and higher monthly payments, while a longer time will mean higher interest costs and lower monthly payments. Financially, unless loan payments are deductible, it is much better to have a loan amortization period of 15 years or less if you are able to manage the payments.
Should You Buy or Rent a Home?
Buying a home is one of the biggest decisions you’ll make in your life, and it’s a personal choice that’s different for everyone. Consider your lifestyle and financial position as well as the future you envision for yourself and how affordable that future might be.
For more information on how to calculate the financial impact of home ownership, visit these related blog posts:
- Home Ownership Changes in Canada | Are Canadians Still Buying Houses?
- Programs and Financial Assistance for Home Ownership in Canada
- The Right Time to Buy a House | Can You Afford to Buy a Home in Canada?
We Can Help You Decide
Unsure of how to analyze your financial situation and the impact of home ownership? We are happy to work with our clients to determine the best financial and life decision for you, your family, and your goals.
Connect with us today at www.kwbllp.com!