Should I buy a house or rent ?

In a country of rising rents and a substantial low interest rate, it raises a common question, should I buy a house or rent?

There are some things you should consider before making a decision, such as financial status, place of preference and financial security.

Repayments :  If you can afford rent in some suburbs, you might find that the monthly repayment is much the same.

Example 1:  A tenant is paying $500 a week rent in an apartment valued at $400,000. The weekly mortgage repayment on such an apartment at 5% over a 30 year loan term is $495.19.  In this example it would appear almost silly not to take up the purchase offer, but there are other things you may want to consider.

Example 2: A tenant prefers to rent in an upper market area, paying $900 per week for a house that has a value of 1.3million. The weekly mortgage repayment on such a house at 5% over a 30 year loan term is $1,609.35. In this example the mortgage repayment would be close to double the rent and might be out of reach for someone that has locational preference in a particular suburb.

Commitment: One might argue that a tenant paying rent is required to commit to the same level as one would paying a mortgage. The only difference is if a tenant can’t afford the rent, they can choose to move to a more affordable area without the consequences of a bank takeover as a home purchaser face. You also might just not be comfortable with the idea of committing to a loan, or it might not suit your lifestyle if you are a frequent traveller.

Financial security: A freelancer who is moving in and out of jobs may not only have difficulty getting approved for a loan, but is at an increased risk of not being able to honour mortgage repayments. Someone who has a reasonably secure job and feels that they can honour mortgage repayments even if they are left without a job during migration to the next, should more consider a purchase option as shown in Example 1.

Leave a Reply