To Rent or to Buy – a personal decision, we’ve all made at least once before. People argue Real Property ownership is as a safety net, an ever-appreciating asset, that provide shelter or income for generations to come. On the other hand, home ownership is a responsibility, it disrupts your mobility, it can add costs / inconveniences to your life. Both of these perspectives are true. In this article I’ll break down exactly what monthly expenses you will incur with your home purchase; in hopes to help you decide whether to rent or buy.
Your Mortgage
A mortgage is broken into two portions, the interest, and the principal. With a 4.54% mortgage rate which is the lowest rate you can currently achieve with a fixed term (circa August 2022), we pay lots of interest and not much principal. When interest rates go down, the amount of interest vs principal evens out to about 1:1 and overtime your fixed payment will slowly become almost all principal and no interest. The reason I chose to present your mortgage payment this way is because your principal is the amount of money, you pay off your mortgage each month; in other words, if your home value does not decrease, it’s money you will get back when you sell.
Insurance, Property Taxes and Maintenance
Insurance plays a relatively minor role in monthly expenses, but it depends a lot on the type of home. An older home with a less flood resistant basement (due to grading, lack of a sump pump / weeping tiles), will cost more. A larger house (despite it’s age) will also cost more each month. The cheapest insurance policy I have ever seen in recent years is $90 / month – with the absolute bare minimum coverage. Policies can go as high as $300 / month depending on the type of property purchased and its size.
Property Taxes is always more expensive than people think. Usually between 200 – $600 / month. This is a major cost people overlook when budgeting. Every house has been ‘assessed’ by the city, this value is used to calculate your property taxes. You can use maps.edmonton to find 2022 property taxes. The ‘Mill Rate’ is the percentage used to calculate your yearly taxes based on your properties tax assessment. Follow this link to estimate your property taxes.
Maintenance is worth discussing as renters do not have to take the same steps as owners towards keeping their property in good shape. Deferred maintenance is a term used to describe the value discount a property can bare if it’s not maintained. Here’s an example: if you don’t have your gutters cleaned out every spring or fall – weeds accumulate and the intense moisture causes your roof to fall apart earlier than expected. Whether you realize it or not, you’re likely spending approximately 100 – $200 a month on keeping your home in properly working order. Normally this expense is in the form of one large payment, for a new window, plumbing work, etc.
All expenses increase as your mortgage increases, normally though these additional expenses are tied to house size rather than the actual price – so an expensive smaller home will likely maintain a cheap insurance and maintenance budget / month.
