To Rent or Buy: A Simple Comparison for First Time Home Buyers in Saskatoon
I want to show you a simple comparison on money spent on rent vs. money spent on buying a home. The number’s I’ve used below are just estimates, but they will help illustrate an important point that most first time home buyers need to consider when looking for their first home in Saskatoon.
Let’s paint a picture:
- Renting a home valued at $350,000 may cost you about $1,700 in rent plus utilities.
- Purchasing that same home will cost you $1,745/month mortgage principle and interest, $250/month property taxes $120 home insurance, $100 general repairs (Total $2,215/month).
On paper, it looks like your total monthly home ownership budget is $515/month more than renting. So why buy?
Here is where ownership will get you ahead:
- Of the $1,745/month mortgage payment, $716 of that goes back to you by paying down the principle part of your mortgage.
- Each payment you make lowers the mortgage balance and increases this portion along the way.
- By the end of 5 years in your home, you will see that $850 per payment is going toward your mortgage pay down.
- Total mortgage pay down over 5 years is $47,000.
- Renting saved $515/month, which over the same 5 years = $31,000.
- Home ownership comes out on top in the first 5 years by $16,000.
- The best part is that over time, this advantage grows and grows.
- The next 5 years an additional $56,000 is paid down, rent still at $31,000 (hopefully) means a further savings of $25,000.
So over the first 10 years, $41,000 of mortgage pay down after additional home ownership costs accounted for. That savings moves to $77,000 in 15 years.
And we still haven’t talked about home value changes or major home refreshing that need to be done over time in this post either, but that is a story for another day!
In summary: home ownership can put more strain on your monthly budget, but the gains to your personal net worth outweigh renting. You will be building a nest egg of equity by eventually owning your home without a mortgage: a home that will allow you to live with no mortgage payment into retirement or to use that built up equity to generate usable cash in the future.