Will Renting Help You Reduce Your Debt?Apr 24, 2019
Most young couples dream of home ownership. It was rite of passage for previous generations: get settled in your career, get settled in your relationship, get settled in your own home. But today, there are so many more ways to live and function as a couple or a family. The housing market is hard to get into, and owning has its drawbacks. It may be better for young people with a lot of student debt or consumer debt to continue to rent. Renting allows them to reduce their debt and grow their savings instead of spending their money on the house.
North Bay is a seller’s market, in part because it offers homes priced under $500,000, which is more affordable for young couples. That’s attracting the attention of home buyers from other cities who can’t get into the housing market. The cost of living in North Bay is also much cheaper than in major centres like Toronto.
But, you may also be earning a lower salary than you would in Toronto. You might be trying to pay back a hefty student loan, have car payments, and are delaying life milestones like having children, since you could be struggling with affordability.
So, is now the best time to take on the financial responsibilities of home ownership?
Renting frees your money
Let’s start with the basics: owning a home is more costly than renting.
Many people think that qualifying for a mortgage means they can afford to become homeowners, but that’s not always the case.
You may be able to make the mortgage payment, but what about all the other costs that go with home ownership, such as insurance, property taxes, repairs and maintenance?
Your mortgage can cost you up to 40 per cent more than your monthly rental payment. If you’re spending that much on housing, will you be able to maintain an emergency fund and save for retirement? Will there be enough money left over each month to reduce your debt? Will you be able to enjoy a vacation once in a while?
Or will your debt only keep climbing?
The extra cash that can go toward debt reduction and growing your wealth is a big benefit of renting.
If it’s going to cost you more to afford to be a homeowner, see if you can live without that money. Set it aside each month.
After six months, consider using the extra money to take a chunk out of your student loan debt or other debt you’ve been carrying. If you’re already steadily paying down debt, invest the money. (While owning a home can be a safe investment, it usually won’t give you the returns you can get with other types of investments.)
Other benefits of renting
Renting also means that it will be easier to relocate if job opportunities open up for you in other cities. You’re still young; you and your partner may not be ready to settle down when there is a world of opportunities to explore.
In addition, our Affordability Index survey told us that a whopping 80 per cent of homeowners say it’s a struggle to save for retirement. Is that a trade off you want to make?
The ability to save for retirement provides a feeling of security and peace of mind. While you may be able to sell your home to help fund your retirement, there’s no guarantee that it will provide enough money to allow you to live the way you want in your later years.
The bottom line if you want to reduce debt
In recent years, millennial homeowners have found themselves ‘house poor’ and wanting out. Depending on your unique situation, you and your partner may be better off — and less stressed — using the extra money you’d spend on home ownership to reduce debt, grow your wealth, and save for retirement.
Would continuing to rent help you reduce debt? Are you going to proceed with buying a home? Tell us your story on Twitter. #LeaveDebtBehind #Rent #StudentDebt