While owning your own home has always been the great Australian dream, there are, in fact, arguments for renting. Both owning a home and renting one come with a list of pros and cons. The new Genworth Calculator can help quantify the numbers from a financial standpoint that may help make the decision. More factors to keep in mind are listed below.
What are the pros?
- If you’re not saving for a first home owner’s deposit, a large portion of earnings are free to be used on other things. Either life’s luxuries or even investing outside of the property market. There are investment options on the market that have far higher returns than property.
- Similarly, renters are in a better position to diversify their investments across options to limit the risk of loss. Home owners, especially first home owners, often have all their ‘eggs in the one basket,’ being their home.
- More money available for study and travel.
- Flexibility- rental tenants are free to move from home to home, town to town after giving the minimum notice to vacate.
What are the cons?
- Renting costs historically rise with the cost of inflation and property prices. Initially home loan repayments may be higher than rental payments, but this usually changes over the life of the loan because the interest costs will decrease as the principal is paid off.
- Rental costs are ongoing, whereas once a home loan is paid in full- there’s no more repayments. As most home loans are paid off in 30 years, home owners approach retirement with a home they can live in and only pay maintenance costs and council rates with no major repayments each month. Renters will be faced with the same large sum each month.
- A home loan can be viewed as forced savings, as you are putting money towards an asset that should increase in value over time. When renting, you’re not forced to make these payments, and it can be tempting to spend spare funds on things you don’t’ need, rather than saving or investing the money.
What are the pros?
- Owning your home provides more stability. You won’t need to worry that the landlord might sell the property next week and give you 90 days to leave.
- Freedom- home owners have the freedom to decorate the interior, exterior and landscaping of their own home as they like. You don’t need anyone else’s permission to paint a wall or hang photo frames wherever you want. There’s a personal level of satisfaction that comes from owning a home that is exactly as you would like it to be.
- Over time, the general anticipation is that house prices will rise. This means you have an asset that can potentially increase in value over the long term. While house prices do experiences periods of weak growth, and have even fallen on occasion, home ownership should be viewed as a long-term investment strategy.
- You can use the equity in your own home. If your home is increasing in value, as you pay off your loan, the equity you hold in the property will also increase. Later, this equity can be used to fund other investments such as shares, investment property purchase or managed funds.
What are the cons?
- While a good mortgage broker can negotiate a great deal, interest costs are still significant. Over the life of the loan, a great deal of money will be spent on interest and bank fees. Interest rates can also fluctuate over the life of the loan if you have a variable interest rate.
- The costs of home ownership extend beyond a deposit and simple loan repayments. It’s important to factor in ongoing costs, such as council rates, maintenance and repairs, depreciation, water and home and contents insurance.
- The opportunity costs involved with having most of your money tied up in a home can include having nothing left for travel, study or entertainment. As mentioned above, the money that would have traditionally gone towards savings for a home deposit can potentially be invested in activities that are even more profitable than the housing market.
Ultimately, the choice to rent or buy isn’t an easy one. Your individual wants, needs, priorities, income and lifestyle are all deciding factors. While matters of freedom and flexibility cannot be quantified by the Genworth Calculator, they matter all the same and should be considered.
If become a first home owner is something you are interested in, and it makes financial sense for you and your family, give Tracy at Mortgage Masters a call today on 0439 159 843 to discuss your options. Tracy can help you find the right deal to enter into the property market as a first home owner, plus she is well versed on the new legislation around first home owner grants and eligibility. Give her a call today!