Renting or buying: which leaves you further ahead?
Compare owning a home with renting and investing the difference, using Canadian mortgage rules. You'll see the monthly cost of each, where your net worth lands, and the year buying catches up, if it does.
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Rent isn't throwing money away
Rent buys you a place to live. So do mortgage interest, property tax, maintenance, and the money tied up in a down payment.
The fair comparison is the unrecoverable costs of each. For a renter that's rent. For an owner it's interest, property tax, maintenance, insurance, condo fees, and the return the down payment could have earned somewhere else. The principal part of a mortgage payment is savings, which is why the calculator counts home equity as the owner's net worth.
The other big factor is time. Buying and selling a home in Canada easily costs 5% to 7% of its value once land transfer tax, legal fees, and commissions are added up. Stay three years and that's hard to earn back. Stay fifteen and it barely matters.
CMHC insurance premiums
With less than 20% down, the mortgage has to be insured. The premium is a percentage of the loan, based on how much you're borrowing compared with the price.
| Down payment | Premium on the loan |
|---|---|
| 5% to 9.99% | 4.0% |
| 10% to 14.99% | 3.1% |
| 15% to 19.99% | 2.8% |
A 30-year amortization adds 0.2% to the premium. Insured 30-year mortgages are open to first-time buyers and to anyone buying a newly built home. The insured price cap is $1.5 million.
Renting only wins if you invest the difference
The renter in this calculator is disciplined. They invest the down payment on day one and, whenever owning would have cost more than rent, they invest that gap too. A renter who spends the difference instead ends up well behind.
That's a budgeting question more than a housing one. If you rent, give the difference a line in your budget and send it to a TFSA every month. If you're saving to buy, the FHSA calculator shows how much tax-free room you have for the down payment.
Questions
Is it better to rent or buy in Canada?
It depends on how long you stay, what you pay in rent, and what you would do with the money you do not put into a house. Buying tends to win the longer you stay, because closing and selling costs are spread over more years. Renting tends to win over shorter stays, or when rent is low compared with the cost of owning a similar home.
What does the calculator compare?
Your net worth after the number of years you choose, both ways. The owner ends with the home, minus the mortgage still owing and the cost of selling. The renter ends with an investment portfolio that started with the down payment and closing costs, plus whatever each month owning would have cost more than renting.
Why is the mortgage payment different from other calculators?
Canadian fixed-rate mortgages compound twice a year, not monthly. That makes the payment a little lower than an American-style calculator shows for the same rate. This calculator uses the Canadian method.
What is CMHC insurance?
Mortgage default insurance, required when your down payment is under 20%. The premium is a percentage of the loan and is usually added to the mortgage. In Ontario, Quebec, and Saskatchewan, provincial sales tax on the premium is due at closing and cannot be added to the loan.
What is the minimum down payment in Canada?
5% of the first $500,000 of the price, plus 10% of the portion between $500,000 and $1.5 million. Homes priced at $1.5 million or more need at least 20% down.
Does it include taxes on investment growth?
No. A principal residence is generally exempt from capital gains tax, and the renter is assumed to invest in a TFSA or similar account. If the renter would invest in a taxable account, lower the investment return a little.
Whichever you choose, the budget comes first.
Owning adds property tax, maintenance, and surprise repairs. Renting only works if the difference really gets invested. CalmDollar gives each of those its own envelope, so the plan you made here is the one you live. Free to start.
