Rent vs Buy Homes: The 5% Rule

Renting has its upsides, but is it always better to rent vs buy? When couch surfing with friends or family is getting you down, it could be time to buy. 

Let the 5% rule decide for you.

It’s a simple way to take the strain out of making important lifestyle choices that affect your future — and your budget. 

Quick Read

Is renting cheaper than owning?

Is it better to rent or own a home?

Advantages of owning vs renting a home

Is It True Renting is Cheaper Than Owning a Home?

Renting can be cheaper, if you discount the fact you’re still paying a mortgage, just someone else’s. But what if you could calculate the actual difference to rent vs buy?

Using the 5% rule gives you a better idea of where your money is going. Wealth management firm PWL Capital explains the rule this way. Home buyers and renters both have unrecoverable costs. For buyers, that’s:

  • property taxes (1%)
  • maintenance (1%)
  • mortgage interest and opportunity cost (3%).

For renters, it’s the cost of paying for housing you have no stake in. Find Toronto area homes for less

Money Sense and Rent vs Buy Decisions

If you’re one of the 57% of Ontarians who rent vs buy because they think they could never afford a home where they live, take heart. Buying could just be the long-term investment your savings needs.

It’s true saving 5% down and paying legal fees, land transfer taxes and PST, plus CMHC mortgage insurance adds up — $823 a month for five years for a modest $423,000 Scarborough condo. No wonder 27% of surveyed Torontonians say they’d be content to rent vs buy (Housing Affordability in Ontario, OREA, 2021). Buy an assignment pre-construction completion.  

Either way, your monthly expenses to rent vs buy are about the same:

    • hiring a mover
    • hooking up utilities
    • paying heat, power, or water
    • cleaning and upkeep
    • buying furniture 
  • appliances for home buyers
  • fire, floodplain, or rental insurance
  • parking and storage.

The difference if you rent vs buy can be anywhere from $650 a month to $0. Yes, you save on making renovations or repairs yourself (the landlord does all that), paying annual property taxes, and making costly mortgage interest payments when you rent. But what you miss out on is an asset that, depending on the market and how long you hold, may add to your long-term wealth. 

What to know about buying a new construction home. When do you pay for a new construction home? What to do when builders delay completion

When to Buy vs Rent

You should seriously consider whether to rent vs buy when:

  1. You plan to stay in a neighbourhood. Most real estate appreciates over time — depending on where you live, from 2% to 6% annually. Hold on for 25 years and conservatively speaking, after deducting 5% for commissions and legal fees, you could have close to $775,000 in your pocket. Calculate average home appreciation by neighbourhood.
  2. You live on a strict budget. Renting has its own perils. How about those renoviction threats and annual rent increases? Buying land in Ontario, down payment and all, gives you stable payments for the term of your mortgage, and a home equity line of credit to borrow against for unexpected expenses, like replacing your car. 
  3. Renting costs as much as or more than to buy. Tally up average rents in your favoured neighbourhood, then check out what homeowners are paying for: 
  • monthly mortgage payments
  • interest over the loan term, six months to 10 years
  • and interest over the entire amortization period, typically 15 to 30 years.

Now add in one-time expenses:

  • your down payment
  • mortgage life insurance, for downpayments of 5% to 19.99%
  • legal fees, including registering the land title
  • and your share of the seller’s property taxes and utilities.

Next, deduct land transfer tax rebates, first home buyer incentives, and options like shared equity mortgages from CMHC. Find federal home buyer rebates

If the cost to rent vs buy is negative, it could be time to start looking. What happens if you change your mind after making an offer. Who gets the deposit when buying a house

Living outside your preferred neighbourhood may not be so bad after all. Read about Ontario home buyers who found cheaper homes in places they didn’t expect to live. 

See land transfer tax rebates for Ontario home buyers. 

Why You Need a Real Estate Lawyer

Close real estate transactions with ease when you use Axess Law. Bring your offer to purchase to any Axess Law office to make your purchase a reality. Axess Law costs less than traditional lawyer services, and meets your completion deadline on time. 

Access lawyers in Ottawa or Greater Toronto Area transfer title to property to register your new home in your name. Then we add inexpensive, one-time only title insurance to protect mortgage fraudsters from targetting you. What is title insurance and why it matters.  

Axess Law reviews your agreement of purchase and sale for terms and conditions that can affect how long you have to complete the deal, and protect your buyer’s right to cancel. We suggest clauses that allow you to inspect a home before you take that final step, and negotiate with the seller’s lawyer if your potential new home has major structural problems.

Questions to ask lawyers when buying a house. 

Axess Law liaises with banks, credit unions, trust companies, or private lenders to receive their mortgage directions. When you find the home financing that’s right for you, give us a call and we’ll arrange for you to sign for a mortgage loan. Our licenced legal professionals can arrange your land transfer taxes, and inform you about rebates for first time home buyers. 

And when it’s all arranged, your real estate attorney hands you the keys to your new home, or password to your lock box. 

Welcome home!

Asking real estate lawyers

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario  when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. 

Find a real estate lawyer near me. 

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