How does a person decide and what to consider when deciding between these options: renting vs buying a home? Affordability of housing has been a big issue. Determining whether to continue renting or finally jumping onto the property ladder can be a challenging decision.
Should you be renting or buying a home? Let’s go through some of the benefits and drawbacks of both alternatives to help you make an informed decision.
Renting: the benefits
As a tenant, you can gain flexibility while renting. You can readily relocate anywhere as you please once your lease expires. This is contrary to the costs associated with buying and selling your home, which means less flexibility to move.
Spare your savings
By choosing to rent, you’re not obliged to spend your savings on a home deposit and other costs associated when you buy a home. You’re given a chance to redirect your money to spend or invest elsewhere. And depending on what you invest in, you may even get a greater return on investment (ROI) when you think carefully about your goals and strategy.
Or, if you’re not yet ready to invest your savings, there are other places you can put your money that is not a deposit and a mortgage. A travel or a short course study perhaps?
Renting allows you a range of investments. By diversifying your investments, you’re also spreading out any potential risk involved.
On the other hand, buying a home usually means that you’ll gain an asset. However, are you comfortable with most or all of your savings tied up in just one investment?
Renting: the drawbacks
No forced savings
With renting, there’s a possibility to be tempted to spend extra cash instead of saving or investing it. When buying a house, it usually comes with a mortgage, which is like forced savings. As you pay your mortgage every month, you’re putting money towards an asset that may increase over time.
It’s more expensive to rent
Initially, your mortgage repayments may be higher than the cost of renting. However, the interest charged on the loan reduces as the principal is paid off over the life of the loan. Of course, this will depend on where you live, among other factors.
Many individuals pay off their mortgage in under 30 years. There could still be expenses for home maintenance and council rates during this time. However, they’ll be free of huge monthly rent to live in their home.
And guess what? There’s rental payments. When you retire and your income is limited, it may be challenging to find money to cover rent each month.
Buying a home: the benefits
Freedom and stability
Owning a property allows you the freedom to decorate and renovate your home as you please. Buying a home also provides certainty to homeowners as there’s less risk of being displaced by the landlord. Tenants don’t usually have the say on how long they can occupy a rental property once the lease term is up.
Increase in property value
An asset such as a property may increase in value if you invest in it. While this may be the case, having a property can also have weak growth or fall in value over a period of time. You should always be ready with a long-term investment strategy.
You can use your home equity
Home equity can be your safety net in times of financial difficulty provided that your property value is increasing. Your home equity will also be increasing as you pay off your mortgage. You may then be able to use some equity through a reverse mortgage to pay for your retirement expenses.
Buying a home: the drawbacks
Interest and fees
The payment for interest and fees over the term of a loan can be significant. Expect for interest rates to rise and fall during the term of your loan, most especially if you have a variable interest rate or expired fixed rate.
Opportunity costs are unseen costs of having a property, where that money could have been invested or used elsewhere. Certain investments could potentially yield faster or greater returns than a residential property.
It can cost more than just a home deposit and loan repayments
It’s not cheap to buy and sell a home. The Reserve Bank of Australia figured that it costs about 4% of the sale price of your property to sell, which may include agents fees and advertising. Also, about 6% of the purchase cost is spent on government fees, stamp duty, loan establishment fees, conveyancing costs, among others
Owning a property also involves ongoing running costs such as repairs, council rates, depreciation, water and insurance costs, and body corporate fees. All these are obviously more than just your deposit.
Use the ASAG Reverse Mortgage for your Day-to-day expenses
There are different factors to consider when you’re deciding whether to rent or buy a house. These may include your available funding, lifestyle, and investment goals. Do research and talk to an expert to get assistance on how to make this important decision.
Most senior Australians are concerned about their housing expenses in retirement. Here at ASAG, we offer our equity release solutions to help you ease your burden by unlocking the wealth in your home. One of which is our reverse mortgage.
The top benefit of the ASAG Reverse Mortgage is there’s no ongoing payments required, eliminating one more worry you have to deal with as you enjoy your retirement. But, repayments can be made voluntarily at any time without penalty, reducing the balance and interest charged. The funds you’ll receive can be used for any purposes you may see fit, including your Day-to-Day Expenses.
Our team at ASAG is happy to assist you with more information about how our reverse mortgage works. Our lines are open on 1300 002 724 and at firstname.lastname@example.org, so feel free to contact us or send your enquiries about our equity release solutions.
You can also get started by using our tool below to assess your available equity.