Renting vs. Buying
Some interesting facts to ponder - now that housing prices in Windsor and Essex county have decreased it is an excellent time to get in the market!
1) Rent Lost
Rent = $1,200/mo. The average person takes 30 days to buy. If you wait 6 months, you will pay your landlord $6,000.
2) Rate Change
If today's rate is 5.5% on a 30 year fixed rate mortgage, assuming a $200,000 sales price with 5% down: Your payment will be...$1,073 per month...
The following shows what happens to your payment if your rate goes up by the time you buy (in ½% increments)
Rate | Payment | Loss/mo | Cost/YR | Cost 7/Yrs | Cost 30/Yrs |
6.00% | $1,133 | $60 | $720 | $5,040 | $21,600 |
6.50% | $1,194 | $121 | $1,452 | $10,164 | $43,560 |
7.00% | $1,256 | $183 | $2,196 | $15,372 | $65,880 |
This number you must look at from the long term picture. If you wait 6 months to buy a home, it is possible that the rates will be up .5%. The cost/loss to you IS NOT $60 per month. The cost is $60 per month times however many months you own the home. The average Canadian owns a home 7 years, so that loss equals $5,040. If you keep this home as a rental property (a great idea especially for your first home and when rates are this low) then the loss is times 30 years, or $21,600. Of course if you look at it like a good financial planner would, your loss is not simply the $21,000 but it's that amount times the opportunity cost of lost interest had you invested that money yielding 5%-10% appreciation compounded annually. This of course multiplies the loss to 2 to 3 times the actual cash loss!
3) Appreciation Lost (Assuming a $200,000 sales price)
Appreciation | Per Month | 6 Months | 1 Year |
3.00% | $500 | $3,000 | $6,000 |
5% * | $833 | $5,000 | $10,000 |
6.00% | $2,000 | $6,000 | $12,000 |
8.00% | $1,333 | $16,000 | $32,000 |
10.00% | $1,666 | $20,000 | $40,000 |
SUMMARY: IF YOU WAIT 6 MONTHS TO BUY, YOU ARE LOSING BETWEEN
$8,000 AND $15,000 IN THAT TIME ALONE.
IF YOU MISS TODAYS RATE, IT COULD COST ANOTHER $15,000 TO $100,000 MORE OVER THE LONG HAUL. One Last Point: Affordability and Lifestyle
I do not recommend ANYONE BUYING A HOME that they can not afford, or that will make them "house-poor". I recommend that you should be fairly conservative. This means add up your PITI (total mortgage payment with taxes and insurance added in) and your payment should NOT be above 30% of your GROSS monthly income (before taxes).
Remember this though: If you "wait" to buy, that $200,000 home will most likely be $210,000 next year (5% appreciation). So the question you must ask is, "Is my income going up 5% per year?" If not then you will be able to afford LESS in a year than you can now.
* This is not intended as an earnings claim on purchasing rental property. Past results are not in indication of future performance. For a detailed analysis please call me direct at 519.567.9996 and we can determine if now is the best time for you and your family to purchase.