- Posted 29 Jan
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The most common question we receive from our customers when seeking out our help is around renting versus buying their own home.
Most first home buyers are unsure and nervous and new to the property market, so it is a fair question to be asking.
The answer isn’t easy, because it does depend a lot on personal situations and deposit amounts, but below is a discussion on the pros and cons of moving from renting to owning your own home that should help any first home buyers to make a more informed decision.
Pros and Cons of Buying vs. Renting
In Australia, we are currently experiencing record low interest rates, so buying a home is an attractive option, particularly if you’ve got good savings and are able to meet monthly mortgage repayments.
Remember, when thinking about buying any property, and weighing up pros and cons, it’s important that you factor in your personal circumstances, what your future plans are and what your financial situation is currently like, before making any concrete decisions.
|Property value rises/falls||If you own the property, then your personal wealth increases, you have immediate access to equity and you would be able to make a profit if you wanted to sell. If the market fell, you’d make no profit and your personal wealth would decrease.||If you’re renting and the property value rises on your rental, then you may be forced to pay more rent. This could also make the rental market more competitive, increase rental rates again. If the market dips however, it’s unlikely that any savings would be passed on to you.|
|Something needs fixing on the property||As a property owner, you’ll need to budget for maintenance and any repairs, but you can choose to do these as you wish.||As a renter, your landlord covers all maintenance, but you don’t have any control over this.|
|Monthly repayments||Your monthly repayments could rise and fall depending on interest rates, although you can reduce this risk by fixing your mortgage (or a portion of it) into a fixed interest rate.||Your rental payments are fixed for the term of your lease, so you know exactly what you’re paying, regardless of any shift in interest rates.|
|Property equity||If you have a principal and interest loan, you’re repayments directly affect your wealth, because you’re paying off an asset and building equity and potentially appreciating value over the long term.||You have no claim on the property as an asset because you’re paying off someone else’s mortgage.|
|Ongoing repayments||You might find your mortgage repayments are more than any rent you were paying, but you’re building wealth and a valuable asset.||It’s likely that your monthly rental payments will be less than a mortgage, particularly if you’re sharing with others.|
|Renovations||You can make changes to the property (with council approval), add cosmetic changes, change décor etc as often as you like.||You are unable to make any major changes to the property beyond décor changes. You can seek to make cosmetic changes, but this will be at the discretion of your landlord.|
As you can see, there are pros and cons for both options, but it’s generally regarded that owning your own home is the better option.
It really does depend on your personal situation and what your long-term financial goals are. If you have good savings and a clean credit history, then buying a home is a sound option to increase your personal wealth.
If you don’t have any savings, it can be difficult to get into a home loan, and it would be better to build up savings before going down this path.
If you need help deciding on the right home loan for your situation, contact our team at Australian Credit and Finance. We can provide you with expert advice and provide you with information so you can make an informed decision.