Owning vs. Renting

In today's economy, many people are choosing to buy a home rather than rent. In some cases, as little as 5% is required for a down payment.

After doing the calculations, it may be more affordable for you to buy a home, rather than renting something.

When determining whether buying or renting is right for you, you will need to ask yourself the following questions:

  • How much money do I have saved up for a down payment?
  • How long do I plan on living in this home?
  • How much do I want to spend on a monthly basis?
  • How good am I at saving money?

Here is an example of a rent vs. buy situation for a $250,000 condominium in downtown Ottawa:

(Please keep in mind that this example is for illustrational purposes only, and we strongly suggest that you to make your own calculations with real life examples and your financial figures, we also strongly recommend talking to a financial advisor, and we insist on getting a mortgage approval prior to purchasing a property.)

Owning Renting
Price: $250,000

Down payment (5%): $12,500
Closing Costs (2%): $5,000
Total Cash outlay: $17,500
CMHC Mortgage Insurance Premium: $6,351
Monthly Mortgage Payment at a mortgage amount of $243,851 ($250,000-$12,500+$6,351): $1,350/month
(based on a 4.5% mortgage rate, amortized over 25 years)
Condo Fees: $200
Property Taxes: $3,000/yr = $250/month
Rental amount for a similar apartment:: $1700.00/month + Heat/Hydro
Total Monthly expenses before utilities: $1,800/month Total Monthly expenses before utilities: $1,700/month

Analysis

It will cost $100 more per month to own the condo, however at the end of 5 years you will have approximately $35,750 in equity with a balance of about $214,250 owing on the condo.

This amount would need to be offset by your opportunity cost of investing your initial outlay of $17,500.+ $100/month added to the pot because it only costs you $1,700/month to rent. Vs. the %1,800 per month to own)

We will use an example of getting a 2%/year return, in a high interest savings account for this money: At the end of year 5 it would amount to approximately $25,644.

Therefore in this example at the end of year 5, you would be ahead by approximately $10,100 if you owned the condo.

Visit our Calculators page and use our Rent vs. Buy calculator to do your own calculations!