Deciding whether to rent or buy can be tricky. One option gives you flexibility, while the other can offer greater security.
To help you make a call on what might be best for you and your situation, here are some factors to think about.
The first step is to do the sums. How much do you pay in rent? Now compare this with how much you are likely to pay in mortgage repayments.
To work out your repayments, you need to take into account the size of your loan and the terms of your mortgage. For example, if you borrow $500,000 and pay 4.5 per cent interest, you might expect to pay around $432 per week.
If you choose a loan with a variable interest rate, keep in mind that your repayments will change if your loan provider decides to increase or decrease the interest rate. These changes normally coincide with the RBA’s decision on whether or not to change the cash rate during their meetings on the first Tuesday of every month. Choosing to pay off your loan over a shorter or longer period of time will also impact your mortgage repayments.
The idea is to assess what the immediate financial impact of your decision would be. Ask yourself, are you financially ready to take out a mortgage? And, how might renting affect your long-term financial outlook?
If you need assistance, try the ASIC mortgage repayment calculator.
When deciding whether to rent or buy, remember it’s not just affordability that matters – you should also think about how it will affect your day-to-day life.
Buying a home for instance, might mean moving to a more affordable suburb. This could increase the time it takes for you to get to work and make it harder for you to spend time with friends and family. You might also find you need to spend more on fuel, road tolls and transport fares.
How close you are to schools, parks and supermarkets can also make a difference to your everyday life. Factor in these costs. They might not seem important now but they could become issues in the future.
Before making a decision, it’s also a good idea to consider your plans for the future. Do you intend to travel? Is there a chance you might want to change jobs? If this is the case, ask yourself how owning a property might affect those plans.
Remember too that renting not only gives you the flexibility to move when you need to, it can also give you the freedom to manage your finances in other ways.
As well as the cost of the property, there are also transaction costs involved with buying an established home. Stamp duty and conveyancing fees can account for around 4.3 per cent of the purchase price, according to the RBA.
However, if you’ve got your own dream home in mind, buying land and building can remove or reduce a lot of these additional costs. Buying homes or apartments off-the-plan can avoid real estate and advertising costs, and stamp duty would only be calculated on the value of the land, rather than house and the land with an established home. But there are also risks with buying off-the-plan, so make sure you seek expert independent advice.
Then there are the ongoing costs to consider. The RBA estimates that the cost of maintaining a property, including council rates, maintenance fees and insurance, is around 2.6 per cent a year.
While there can be some financial advantages to owning your own home – the average Sydney home has risen 26 per cent since 2013 – it’s important to maintain a wider perspective and keep in mind all the costs involved with buying.