It’s Cheaper to Own Than Rent: Take the Long View

You’ve probably heard the debate: is it cheaper own your home or rent? With rising interest rates and the lack of properties available to buy, many people lean towards renting. But here’s the kicker: owning your home is cheaper in the long run. Yes, you heard that right. Let’s dive into why taking the long view on homeownership can save you big bucks.

The Immediate Costs: Rent vs. Mortgage

Rent: The Upwards Slope

When you rent, you know exactly what you’re paying each month. There’s no property tax, no maintenance costs, and no unexpected repair bills. It’s a neat, tidy package. But, there’s a downside—rent keeps going up. According to the latest data, rents have increased by about 17% this past year alone. So, while renting might seem cheaper now, it doesn’t stay that way for long.

Mortgage: The Bigger Bite Upfront

On the flip side, buying a home will require a deposit and closing costs. Plus, there are monthly mortgage repayments, which include not just the loan repayment, but also rates and insurance. It sounds like a lot—and it is. But here’s the secret sauce: those costs are relatively fixed. Over time, the percentage of your mortgage payment going towards the principal increases, while interest decreases. And let’s not forget that if the property is rented out, your tenants are contributing to the mortgage repayments.

Building Equity: Your Secret Wealth Generator

Renting: Paying the Landlord’s Mortgage

When you rent, you’re essentially helping your landlord build equity in their property. Equity is the difference between what the property is worth and what is owed on it. As your landlord pays down their mortgage, their equity increases. Meanwhile, you don’t get any of that benefit. All you have is a pile of rent receipts and no asset to show for it.

Owning: Growing Your Own Investment

When you own a home, every mortgage payment you make builds your equity. Over time, your home’s value is likely to increase (appreciation), and you’re paying down the mortgage, which means more of the property is yours. Think of your home as a forced savings account. Each payment brings you closer to outright ownership, where your monthly housing costs drop significantly. Plus, you can tap into this equity through home equity loans or lines of credit for other financial needs.

Tax Benefits: The Hidden Perks of Homeownership

Deductions, Deductions, Deductions

Homeowners get some sweet tax breaks, including deductible interest and taxes for investors, which significantly reduce taxable income. There are several Capital Gains Tax (CGT) exemptions for property investments: the Principal Place of Residence (PPOR) exemption, a 50% discount for holding a property over twelve months, and the six-year rule allowing a CGT exemption if a former PPOR is rented out for up to six years. Additionally, the six-month rule permits temporary dual PPOR status under specific conditions. Renters do not receive any of these benefits. It is recommended to consult an accountant or financial planner to maximise tax advantages and depreciation deductions.

Stability and Control: More Than Just Financial Benefits

Personalisation and Improvements

Owning your home means you can paint the walls, renovate the kitchen, or plant a garden—anything you want without needing a landlord’s permission. These improvements can increase your home’s value, giving you a better return on investment.

Predictability and Security

With a fixed-rate mortgage, your principal and interest payments remain constant, providing stability. Renters, on the other hand, face the uncertainty of lease renewals and potential rent hikes. Homeownership gives you the security of knowing you won’t be asked to move unless you choose to.

The Long-Term Financial Picture

Appreciation: Your Home’s Value Grows

Historically, real estate appreciates over time. While there can be fluctuations, the overall trend has been upward. This means that the longer you own your home, the more it’s likely to be worth.

Retirement: Mortgage-Free Living

Imagine hitting retirement with no mortgage payments. If you own your home outright, your housing costs are drastically reduced. That’s a significant financial relief that renters don’t have, as they’ll still be paying rent during their retirement years.

Conclusion: Look Beyond the Short Term

Renting might seem like the easier and cheaper option in the short term, but when you take the long view, homeownership is a smarter financial move. It builds equity, provides tax benefits, and offers stability and control over your living environment. So, before you decide, consider the long-term benefits. Owning your home isn’t just about having a place to call your own—it’s about investing in your future.