We are conditioned to think that the natural thing to do in entering adulthood is to buy your own home and start repaying a mortgage, coupled with recent government incentives many pursued the white picket fence and all that that involves, which they have been taught is the dream. However is owning your house really so great for your finances, or would you be better renting?
Should You Own Your House?
The decision to own your own house should come down to what you want out of life and whether you are truly a homeowner at heart, rather than what you think you should be doing. You could be best suited to owning your own home if you like stability in your life and you want to put down roots in the community. At the same time you will have to make sure you are eligible to own a home and apply for a home loan, and that you can budget for all of the expenses which come with being a homeowner in addition to your monthly loan repayments.
Consider the pros of owning your own home, such as:
- Before you have even made your first repayment on your property you will have equity in your home because equity is built when you owe less than the property is worth and if you have put down a 5% or 10% or even a 20% deposit then you have started to build equity and you will go on doing so as you make your repayments each month. Also you are not taxed on the equity you build on your property, as you would be on investment income. Even if you refinance to access that equity it is not taxed as extra income and you can use the funds however you wish for a holiday, home improvements or your next home.
- Property prices may seem to fluctuate significantly, especially in the wake of the property boom in the early noughties, as compared to the slowdown thanks to the Global Financial Crisis. However when you own your own home you need to look at it as a long-term investment because over 5 to 10 years your property is most likely to see positive growth. On average property prices double in value every 10 years and whether you see your property increased in value by 50% in one year and no increase at all in another year, over the course of your home ownership the value of your home will increase.
- If you are a first-time buyer there are often opportunities to save on some of the common costs of buying a home and you may be eligible for tax incentives or stamp duty concessions.
- When you own your own home you have the freedom to relax, renovate, paint and hang pictures however you choose, and you do not have to get approval from a landlord or lament the colour of your bathroom. It is our natural instincts to make the places we live our own and when you own your own home you have the freedom to express your tastes and make your home a place you really want to be.
At the same time there are cons to home ownership which you should consider, such as:
- The initial costs to buy your own home can be inhibitive for many people because there are expenses which can far exceed the loan deposit you need to provide. You will need to consider stamp duty, taxes, loan application fees and mortgage insurance – which protects your lender not you – to make sure you can afford to buy your own home.
- Owning your own home also comes with a myriad of ongoing maintenance costs such as council rates and water rates, property taxes and liability insurance. When you are renting these are all things your landlord would cover but when you own your own home they become your responsibility.
- It has been estimated that new homeowners will need to budget for around $200-$300 per month for home maintenance. This could be anything from new plants and new paint, to new taps or new window locks.
Should You Rent A House?
Most of us have rented a house at some stage in our lives however renting is often seen as a temporary solution before you buy your own home. However is there really any need to move from the rental cycle? After all you could be better suited to being a renter than being a homeowner if you like the freedom to move and travel without having to worry about home loan repayments or applying to your lender to pause your repayments. At the same time to truly be better off renting than owning your home you need to have the discipline to save the money you would normally be paying towards a mortgage and home maintenance. There is no doubt that renting is cheaper than owning but if you want to be in a better financial position you can’t become too comfortable in your lower monthly commitments.
If you are considering maintaining a rental lifestyle you could benefit because:
- While the property market shows growth overall in the long term, other investments can appreciate faster, even a simple savings account. For example if you were paying $2000 a month towards your mortgage, the same house would probably only cost you $1200 a month to rent. Therefore if you invested the $800 difference in a standard savings account you could build financial assets faster.
- In the example above if you were owning your home you would be paying a lot more than just the mortgage in a month however when you rent you are not responsible for spending time or money on maintaining the property. Also tenants insurance is much cheaper than homeowners insurance and your landlord remains liable if someone injures themselves in your home and decides to sue.
- Most rental contracts are only signed for a period of 12 months so at the end of that time you have the freedom to decide whether you want to stay, move to a different suburb or even travel and you don’t need to worry about covering the costs of the property when you leave because it is up to your landlord to find new tenants and cover his mortgage costs.
Before you get caught up in the freedom consider the cons of renting:
- You have no stability over the rent you are charged and if your landlord has made a bad decision about whether they have fixed or variable interest rates on their home loan then you could pay the price as they raise your rent to recoup their costs.
- You also won’t have the final say over whether you stay in your rental property or not because your landlord may decide to sell, they may decide they want to move into the property to retire or they may want you to move out so friends of theirs who are going through a tough time can move in. Whatever the reason at the end of the day the landlord is in control of the property and you can never really put down roots.
- There is also the risk that you are stuck with an irresponsible landlord and you can be living at their whim, waiting for them to find the time to come and fix problems with the house, and being governed by their rules of what you can and cannot do in the house.
The decision to own or rent is a very personal one, but you should consider your options with regards to your financial situation, your financial goals and your own personal needs for your life.