Should you rent or buy a home? It’s a question that can affect every aspect of your life, so it’s a pretty major decision. Buying a home after renting a long time changes where you live, your commute time, social connections, and past times. If you do it right, buying a house won’t shred your budget and condemn you to eating noodle packets for dinner for the next 20 years.
The decision boils down to two main components: your financial situation and personal preferences.
Financially, the main questions are whether you can afford to buy a home in the areas you are willing to live, and whether it’s cheaper to rent or buy a similar house. You must first have a good understanding of your budget – income and expenses – and all available funds for the deposit.
Next compare the expenses for renting versus buying. That’s basically your rent against all the costs of home ownership. There are many more expenses after you buy a house, including the mortgage, insurance, taxes, maintenance, and selling costs. Over time you’ll also have a few “big jobs,” or capital expenses, such as replacing water heaters, decks, flooring and so on. You may want to do renovations, like updating the kitchen. You’ll need some additional savings or loans to handle these projects as needed.
On the “possible gains” side of the equation, buyers may see capital gains on the value of the house. Renters can get ahead by investing any money they have put aside for a deposit.
There is an excellent online tool published by The New York Times that can tell you at what point it becomes more cost-effective to buy than to rent. You can plug in various numbers to personalize the calculation and adapt it for the New Zealand market. Try out different interest rates and house price assumptions. What if house prices going up 2 percent a year? How about 6 per cent? What happens if you buy a less expensive house? The calculator shows you instantly.
Besides money, there are also lifestyle issues to consider. Renting a home is simple and allows flexibility if you need to relocate. In some cases you can afford to live in a nicer home in a better neighbourhood by continuing to rent.
Buying a home, on the other hand offers more stability. The landlord can’t kick you out or sell the house out from under you, as happens all too often in a hot real estate market. You’ll enjoy pride of ownership. You can also keep pets, and make changes to the property to suit your tastes. Even if it a bit more expensive to buy compared to renting, you may want to go ahead for these personal benefits.
Just be sure those factors don’t cloud your vision about your finances. If you’re struggling to pay a huge mortgage each month, the stress can do your head in and ultimately put your home at risk. The question “rent or buy” should always be answered with a solution that is truly affordable.
If you’ve been through the numbers and decided you’re ready to buy a home, talk to your mortgage broker regarding your deposit, loan and interest rate assumptions. With our long experience, we can often find our clients a better mortgage interest rate than they were expecting, and provide you with some ideas for maximizing your deposit.
We’re here to help, so contact us at 09-834 8682 or supplyme@mortgagesupply.co.nz.
