It’s a popular topic at the moment, with many individuals in their early to late 20s considering escaping the rent trap and purchasing their first home. With the current property market in Perth favouring the buyers and renters rather than sellers and investors, is it better financially to be renting or purchasing a home?
Comparing renting to buying as far as the ongoing payments go can be a difficult process as there are so many variables to take into account so we’ll use a real life scenario as an example.
Mortgage Repayments Compared to Rent Repayments
A client recently bought a house on the Gold Coast for $429,000. The real estate agent appraised the rental on the property to be $430 per week. So, we know what the weekly rent would be for this property – what would the mortgage repayments be?
Interest rates vary greatly depending on which lender you choose, what sort of loan you want – fixed, variable, line of credit, interest only etc – and how much deposit you have. This client chose a fixed rate for three years of 4.09%, with principle and interest payments, from a major lender and ended up with a loan amount of $400,000 after the deposit was paid.
Based on a 30 year term loan, the repayments were set at $1,930.47 per month during the fixed term (please see previous blog relating to fixed vs variable loans). This equates to repayments of $445.49 per week, being $15.49 more per week than to pay the rent.
Of course, there are other costs associated with owning a property that you do not pay if you rent:
• Council rates
• Water rates
• Strata rates
• Body corporate fees
• Maintenance costs
• Building insurance
The question to ask yourself is do you think it’s worth a little more money to own your own home? Whilst the above example showed mortgage repayments to be slightly higher than rent, there are many benefits to owning your own home:
• No more rental inspections
• Decorate as you please – stick posters on the wall!
• Renovate and personalise to make it a home
• A place to create memories
• Surety of a long-lasting place of residence – no risk of a landlord deciding to sell
• Build equity for the future
• Security for you and your children’s future
So, whilst there may be situations where rent may be the cheaper option, purchasing a home can provide a whole suite of benefits, rather than paying for someone else’s investment. Interested in purchasing a home? Speak to our finance brokers in Perth for information on getting that home loan.