- 21 Aug, 2014

Is It More Expensive to Own or Rent?

Many prospective homeowners question whether it is more cost effective to buy their own home or to rent. Undoubtedly the answer lies in the number of years that you intend to live in a property for.

According to research, renting can be a cheaper alternative to buying a home short-term due to the associated costs of home ownership. Therefore, if you’re not planning to stay in a home for more than eight years, say financial experts, then renting may be a more cost effective option. Let’s look at the facts.

On average home values grow at approximately 2.4 percent per annum. This has been the annual average since 1955. Based on this, it takes approximately 8-years for a homeowner to recoup transaction costs of home buying, such as stamp duty and mortgage title transfer fees, which can add thousands to the cost of a home.

So if you expect to be moving frequently due to work and other commitments, and cannot see yourself holding onto a property for investment purposes, then you’re better off financially to rent. This is because home ownership short-term can be very expensive. Let’s look at an example.

The costs of buying or renting property

Jenny decides to buy a home in New South Wales. She’ll be living in the property for 6-years as this is when her work contract ends. She’ll sell the property and then head back to her home state of Victoria. The property costs Jenny $300,000 and she borrows $274,000. Her loan application and other banking fees comes to $1,200. Mortgage registration and transfer costs $2,298.00, and stamp duty $13,628.00. Council rates cost $2,000 per year and the emergency services levy $200 per annum. These costs add up to $27,926.00.

Jenny pays approximately $1,600.00 a month on her mortgage over the 6-years she owns the home for. This adds up to be $115,200.00. Jenny also has to add in property maintenance and insurance costs which adds another $12,000 to her costs. This takes her total costs to $127,200.

Based on the average capital growth of homes, Jenny will sell her home for $343,200.00 after 6-years. This means living in the home has cost her approximately $60,000 over the 6-years, or $833 a month.

If Jenny had of rented over this time, in a share house, her weekly costs for accommodation would have been $150 a week or $600 a month. Over the 6-years this would have cost her $46,800. Therefore, by renting Jenny could have saved herself approximately $14,000.

However, If Jenny had of owned her home longer than 8-years then she would have reduced her home loan principal considerably, and the capital growth of her property would be more significant. This, in turn, would reduce her living costs over the term of her home ownership.

Do you want to know more about home loans? If you said YES, then contact eChoice eChoice today.


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