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Rent or Buy?

Should you rent or buy a home and what are the long-term costs? On the one hand, you're tired of your landlord. On the other hand, buying a home likely means borrowing a lot of money. As well, when buying a home you must make a down payment, money that could otherwise be invested or put into savings. What should you do?

Definitions

Price of home Purchase price of the home you wish to buy.

Cash on hand Cash you have for the down payment and closing costs.

Interest rate The current interest rate you can receive on your mortgage.

Amortization period The number of years over which you will repay this mortgage.

Property tax amount The annual amount you pay in property taxes.

Mortgage fees Fees your financial institution charges for originating your mortgage.

Maintenance/Condo Fee Monthly fee charged for your condominium and any other maintenance costs you expect to incur with the ownership of this home. Please note that condominiums are referred to as "strata" in the Province of British Columbia.

Other closing costs Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other misc. fees paid.

Total closing costs Total up front costs to close your loan. This is the sum of the loan origination fee, the amount paid for mortgage insurance premium and other closing costs.

Mortgage amount Total amount for this mortgage.

After-tax investment return Annual percentage return you would retain, after income tax was paid, if you invested your closing costs and down payment instead of purchasing a home.

Monthly rent payment Amount you currently pay for rent per month.

Expected inflation rate Inflation rate used to adjust amounts subject to annual increases. This includes rent, insurance and tax payments.

Home appreciates at Annual appreciation you expect in the home you are purchasing.

Future sales commission The percent of your homes selling price you expect to pay to a broker or real estate agent when you sell your home.

GST This calculator calculates GST at 6% of a new home's purchase price minus a GST rebate. GST rebates are calculated as follows. For homes under $350,000, the rebate amounts to 36% of GST, up to a maximum rebate of $7,560. For homes between $350,000 and $450,000, the maximum rebate of $7,560 declines to zero on a proportional basis. All homes selling for more than $450,000 receive no GST rebate.

Many new homes have the purchase price with GST and/or HST/PST included. If this is the case for your home purchase, the checkbox to include GST should be left unchecked since the GST and/or HST/PST will be included in the purchase price.

It is important to be aware that there may be additional taxes on new home purchases in the form of HST and/or PST, depending on the province where the purchase is made. These additional taxes are not included in this analysis.

Mortgage Insurance Required? Check this box if you wish to calculate the amount of mortgage insurance payable. For additional information regarding mortgage insurance please read the definition below.

Mortgage Loan Insurance Premium (non-refundable) Mortgage insurance makes it possible for home buyers to purchase a home using a lower down payment. The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment. The Canadian Mortgage and Housing Corporation (CMHC) and Genworth Financial are two companies that offer Mortgage Loan insurance. For more information please visit their websites at www.chmc.ca and www.genworth.ca.