5.1.2 Buy or rent calculator

From: Financial Consumer Agency of Canada

You can work out the math behind a buy-or-rent decision by using the buy or rent calculator at the Autorité des marchés financiers website.

The calculator uses certain assumptions to make the calculations. The outcomes vary greatly depending on the assumptions you make about changes over time, but the calculator can give you a general guide based on the figures you use. Try varying the figures you enter to consider a range of possible outcomes.

Example

Robin and Jessie are considering buying a unit in a new townhome development where they can raise a family. The sale price is $225,000, with a 10 percent down payment. Their alternative is to rent a large apartment for $950 a month. If they rent, they can invest all the money they save by not buying, including the down payment and the purchase costs. With those assumptions, the buy or rent calculator shows that:

  • For the first 15 years, Robin and Jessie are better off renting than buying. After that time, if they are still living in the apartment and all their housing costs stay the same, they will make less money than if they had bought the condominium.
  • However, if they have a yearly rent increase averaging two percent a year, they are only better off for the first 11 years instead of 15 years.
  • For owning to be more profitable, the value of the condominium has to increase by at least 1.8 percent per year. If it does not, Robin and Jessie will never be better off financially by buying the condo—unless other factors change in their favour.
Robin and Jessie weigh the costs and benefits of renting versus buying a home.

If you're thinking about buying a home, go to the buy or rent calculator and compare the financial choices for renting or buying in your area. Consider the information from the calculator when you make your decisions.

The buy or rent calculator can help you compare possible financial outcomes, but it cannot predict any of the key factors, such as how long you will stay in a house, changes in the cost of rent, sales prices or investment returns. It assumes that you will invest all the money you save by renting, although many people find this difficult. Short-term calculations are more reliable than those involving longer terms, since many factors can change over time.

The calculator shows some potential results of buying a home as a financial investment. As with other major investments, an advisor who has no financial interest in the outcome can help you balance your financial needs and expectations with a realistic assessment of potential return on your investment.

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