Home Ownership
For most people, owning your own home is one of life’s greatest achievements, while others think renting is just fine. It comes down to what you want to achieve in life and what type of lifestyle you want to live. One of the biggest challenges today is housing affordability. For example, the typical Melbourne free-standing home was worth $778,649 at the end of December 2019 so saving a 10% deposit can be a big challenge.
So, this poses the question of should I continue to rent or is buying a better option? Let’s take a look at the pros and cons to help you make your decision.
Renting
The pros
If you choose to rent over buying a home, you’re essentially freeing up your savings to invest your money elsewhere. There is the possibility that you may get better investment returns than if you put your savings into purchasing a home. This, in turn, will give you more freedom to spend your money on your lifestyle and not have it locked away into the initial cost of buying your own home.
There is also the opportunity to spread your savings across different types of investments therefore not putting all your eggs in one basket.
You also have the option of moving out once your lease is up so you can freely relocate to another property should that suit your lifestyle better with work and your friendship circle. The area you want to live in may not be affordable to buy in so renting makes it possible to live there.
The cons
Have you ever had to move out of your rental property because the owners have decided to either sell the property you are living in or move back in themselves? Sadly, this does occur quite often which means you will never have total stability in whichever property you rent.
Each year landlords will more than likely increase the rent they charge in line with inflation which forces some people to move out to find another property that is more affordable. Moving house is can be one of the most stressful things to do in life.
While your mortgage repayments might be a little higher than renting in that area, the amount you owe reduces over time and you will eventually own the property. If you decide to rent instead, your monthly rent will always be ongoing over your lifetime.
One of the biggest challenges you have when renting a place is having the option to make small changes to the property to make it your own as the landlords do not allow this without seeking their permission first which is near impossible.
Mortgages have long been considered to be forced savings as you have to repay your mortgage each month on an asset which can increase considerably over time. The issue with renting and saving is that you have more flexibility to spend the savings on lifestyle choices rather than continue to save or invest your money.
Buying
The pros
Home Ownership provides you with stability as you cannot be moved out by a landlord. It is yours to do what you want with which gives you the option of making any changes that would benefit you and your family. You may want to change the wall colours, knock down a wall to make it more open plan or embark on a renovation to bring it into the new era.
It also provides the certainty of how much you will be repaying each month as per your home loan agreement and over what term. As you continue to make your repayments on a principal and interest loan the amount you owe reduces each repayment you make.
House prices can rise considerably over time so having an appreciating asset can open up options to add to your property portfolio or fund investments into shares or a managed fund by using the equity in your home or to purchase an investment property where you become the landlord collecting the rent. There are always going to be rises and even falls in value but house prices in most areas have consistently risen over the long term.
Your home or property portfolio can set you very nicely for when you eventually retire and need an income to support you.
The cons
There are acquisition costs that you need to consider when first purchasing a home such as legal fees, stamp duty and lenders mortgage insurance (LMI). LMI is payable if your loan to value ratio (LVR) is above 80% when first taking out the loan.
You’ll also be paying interest to the lender that provided you with your home loan and your interest rate will fluctuate over the term of your loan. Interest rates have lowered presently but they can also rise so it’s important to factor that in to make sure you can still afford to make your repayments in that environment.
If you choose to sell your home at a later date there are considerable selling costs whereas shares or managed funds do not attract such high costs if you choose to sell them off.
It’s also important to be aware of the ongoing costs of Home Ownership such as council rates, body corporate fees, repairs, water and insurance. You need to factor these in when working out how much you can effectively afford to make in repayments on your home loan because if you make any late repayments it will hurt your credit rating and make it difficult to refinance every few years to ensure your interest rate is still competitive in the marketplace.
There will be sacrifices you’ll need to make in order to save your initial deposit and for some that might be a big enough challenge to forgo purchasing their own home as it takes time and changes to your current lifestyle.
How to determine the best option for you
This requires a lot of thought and consideration as to what type of lifestyle you want and what your investment goals are. There are also risks you need to consider that come with any type of investment so it’s important to do your own research.
Talk to an expert to help guide you in the right direction and assist you with your decision.
If you’re still not clear on whether you want to rent or buy, contact Financial Scope Melbourne for an obligation free chat to look at the options available to you.
Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.
Clint Thomasson
Clint has over 14 years experience in Financial Services working with major corporates including NAB, AMP, ANZ, and AXA. With a passion for Mortgage Broking, coupled with his outstanding interpersonal skills, Clint’s drive is all about matching your needs with the right financial solution. Whilst many businesses offer Finance Broking services, the difference you’ll find with Clint is his ability to listen, engage, retain knowledge and accurately match your requirements. Not only that, but he’s also a very friendly and genuine person with a great work ethic – you’ll have full confidence that he will deliver in a timely and highly efficient manner, every time.
