Editor’s note: This is a guest post By Justin da Rosa, from ratehub.ca.
Renting a home or apartment versus buying your own is a dilemma many people face. While it’s true that homeownership can be an investment, what often gets lost in the conversation, is the excess expenses involved with buying, and owning, a home. Plus, there are many benefits to simply renting your place. So, how do the two compare financially? Let’s have a look.
For our purposes, we’ll compare renting the average condo in Toronto, Canada vs. owning one.
Renting: The Costs
Vacancy rates for rentals in Toronto increased around 0.5% in mid-July, according to a rent report by Padmapper. The low supply is one of the major reasons the average rent in the city has skyrocketed to $2,080 for one bedroom, while two bedrooms grew 2.6% to $2,800. Renters often have to pay their own hydro as well, which can range from $35-$60 per month.
Renters often purchase rental insurance as well, but only ranges from about $5-$15 per month.
Of course there are other costs associated with renting, such as internet, garbage and recycling, and electricity, but you’d also have these costs if you were a homeowner.
Total rental costs: $2,155
Buying: The costs
You might already know this, but buying a home in Toronto is expensive. Just how expensive is it, though?
When considering buying a home, the first thing someone needs to do is save for a down payment. The average Toronto condo sold for $582,547 in July. Assuming the minimum down payment for that would be around $33,255, the average Toronto condo would cost $2,745 per month (assuming a five-year fixed mortgage at today’s best mortgage rate of 3.14%), according to Ratehub.ca’s mortgage affordability calculator.
That’s it, right? Not quite. There are other monthly costs associated with buying that many people forget.
According to the same calculator, we can assume $485 per month for property tax and condo fees; $50 for property insurance; and $121 for utilities.
Total monthly fees for a condo or homeowner: $3,401.
Additional Buying Costs
Start up costs are also something to consider. While the renter needs no extra cash to take on a lease (other than a security deposit), the buyer requires some money to finance the following:
- Down payment
- Mortgage insurance ($21,972, according to a mortgage default insurance calculator, which is rolled into the mortgage)
- PST on mortgage insurance (which is required up-front)
- Land transfer tax
- Lawyer fees, if applicable
- Title insurance
- Appraisal fees
For someone buying in Toronto this would require upwards of $52,000 in cash upfront in addition to a down payment.
Final Thoughts
There are many variables when it comes to deciding whether or not to rent or buy a home. Every situation is different and everyone has different priorities — there is no one size fits all.
It’s best to crunch your own numbers, and assess your own priorities when deciding to rent or buy.
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