A big financial decision
Whether to rent or buy depends on money, lifestyle and timing. Maths helps compare the costs honestly.
Costs of renting
| Cost | Notes |
|---|---|
| Monthly rent | main cost; may rise each year |
| Tenant insurance | covers your belongings |
| Utilities | sometimes included |
Pros: flexibility to move, no maintenance bills, small upfront cost, no risk from falling home prices.
Cons: no equity, rent increases, less control.
Costs of buying
| Cost | Notes |
|---|---|
| Down payment | 5–20%+ of the price |
| Closing costs | legal fees, land transfer tax, inspection (often 1.5–4% of the price) |
| Mortgage payments | principal + interest |
| Property tax | yearly |
| Home insurance | yearly |
| Maintenance | often estimated at 1–3% of the home’s value per year |
| Condo fees | if applicable |
Pros: building equity, stability, freedom to renovate, possible appreciation.
Cons: large upfront costs, less flexibility, risk of price drops, repair costs.
Building equity
Equity = market value − mortgage balance.
Example: A home worth $500,000 with $380,000 owing has $120,000 in equity.
Part of each mortgage payment builds equity; rent doesn’t.
Opportunity cost
A down payment of $80,000 could have been invested instead. At 5% per year, that’s about $4,000/year in lost potential earnings. This opportunity cost belongs in a fair comparison.
A simplified one-year comparison
| Renting | Buying a $500,000 home (20% down) |
|---|---|
| Rent: $2,200 × 12 = $26,400 | Mortgage interest (year 1): ≈ $19,600 |
| Tenant insurance: $300 | Property tax: $4,500 |
| Insurance: $1,500 | |
| Maintenance (1%): $5,000 | |
| Opportunity cost on $100,000 at 5%: $5,000 | |
| ≈ $26,700 | ≈ $35,600 in unrecoverable costs |
The principal part of mortgage payments isn’t counted as a cost: it becomes equity. If the home appreciates by 3% ($15,000), the buyer gains that too.
Results vary hugely by city, prices, rates, and how long you stay.
Rule-of-thumb factors
- How long will you stay? Buying usually makes sense only over several years, because of closing costs.
- Price-to-rent ratio: home price ÷ yearly rent. High ratios (common in large Canadian cities) tend to favour renting financially.
- Job stability and lifestyle.
Worked examples
Example 1: Home value $420,000; mortgage owing $300,000. Equity? $120,000.
Example 2: Closing costs of 2% on a $600,000 home? $12,000.
Example 3: Price-to-rent ratio: $750,000 home, $2,500/month rent? 750,000 ÷ 30,000 = 25.
Common mistakes
- Comparing rent to the full mortgage payment (principal builds equity).
- Ignoring maintenance, taxes and closing costs.
- Ignoring opportunity cost.
Try it yourself
- Equity on a $350,000 home with $275,000 owing?
- Annual maintenance at 1.5% on a $400,000 home?
- Name two advantages of renting.
- Name two costs of buying that renters don’t pay.
Answers: 1) $75,000 2) $6,000 3) e.g. flexibility, no maintenance costs 4) e.g. property tax, closing costs
Quick recap
- Renting offers flexibility; buying builds equity.
- Count closing costs, maintenance, taxes and opportunity cost.
- The best choice depends on location, time horizon and goals.