The pros and cons of renting versus owning a home

For years, the adage, “renting is just paying someone else’s mortgage” has spurred many discussions about housing in Canada.

The phrase implies that renting is a waste of money, while homeownership is the ultimate financial goal. However, in today’s real estate and interest rate environment, that sentiment warrants a closer look. While homeownership has undeniable benefits, renting can be a sound financial choice for many Canadians, depending on their circumstances and financial goals.

The case for renting:

1. Flexibility and mobility—One of the most significant advantages of renting is the flexibility it offers. Renters can move without the burdens of selling a home, making it an ideal option for those who value mobility or are unsure about where they want to settle long-term. This is especially relevant in a volatile real estate market where selling a property could take time or result in financial losses.

2. Lower upfront costs—Buying a home in Canada often requires a substantial down payment, which is typically at least five per cent of the home’s purchase price (though often much more), plus additional costs, such as land transfer taxes, legal fees and home inspections. Renters, on the other hand, only need to budget for a security deposit and possibly the first and last month’s rent. That lower barrier to entry allows renters to allocate their savings to other priorities, such as retirement, education or travel.

3. Predictable monthly expenses—Renters enjoy relatively predictable monthly expenses, which makes budgeting simpler. While landlords can increase rents, those changes are often regulated. Homeowners, however, face variable costs, including property taxes, maintenance and potentially fluctuating mortgage payments if they have a variable-rate loan—a significant concern in today’s high-interest rate environment.

4. Avoiding market risk—The Canadian real estate market has experienced dramatic price increases in recent years but it is not immune to corrections. Homeowners bear the risk of their property’s value declining, which can lead to financial strain or limited options if they need to sell. Renters are insulated from that risk, giving them greater financial security in uncertain markets.

The case for buying:

1. Building equity—One of the most compelling arguments for homeownership is the opportunity to build equity over time. Mortgage payments contribute to owning a tangible asset, unlike rent payments, which provide no direct financial return. Over decades, this can significantly contribute to an individual’s net worth.

2. Stability and control—Owning a home provides stability, as homeowners are not subject to the whims of a landlord. They can renovate, decorate or make structural changes without seeking approval, creating a space that truly feels like their own. For families or individuals looking to put down roots, that stability can be invaluable.

3. Potential for appreciation - While real estate markets can be unpredictable, Canadian properties have generally appreciated in value over the long term. For homeowners, this potential for capital gains can significantly enhance their wealth, provided they can hold onto the property during market downturns.

4. Tax advantages - In Canada, the principal residence exemption allows homeowners to avoid paying capital gains tax on the sale of their primary home, making homeownership a potentially tax-efficient way to grow wealth.

Balancing the decision in today’s market:

Canada’s current housing and interest rate environments complicate the decision between renting and buying. With mortgage rates at multi-decade highs, monthly payments on a new mortgage are often significantly higher than comparable rent. For example, a $500,000 mortgage at a six per cent interest rate results in monthly payments of approximately $3,200, not including property taxes and maintenance. In contrast, renting a similar property might cost $2,000 to $2,500 per month, freeing up cash flow for paying down debt or other financial goals.

Additionally, the high cost of homeownership means that many Canadians are stretching their budgets thin, leaving them vulnerable to unexpected expenses or economic downturns. Renting, in contrast, allows for greater financial flexibility, enabling individuals to save, invest, or spend in ways that align with their priorities.

The bottom line:

The decision to rent or buy should be an individual one and depends on factors such as financial goals, lifestyle preferences and market conditions. While homeownership has long been seen as the pinnacle of financial success, renting should not be dismissed as a poor financial choice. For many Canadians, especially in today’s high-cost and high-interest rate environment, renting can offer greater financial stability, flexibility, and peace of mind.

Rather than viewing renting as “paying someone else’s mortgage,” it’s more accurate to see it as paying for a service—a place to live without the risks and responsibilities of ownership.

For those who value freedom, lower upfront costs and predictable expenses, renting can be a smart and strategic choice.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.