The rise in interest rates over the past few years has not only impacted many Quebecers’ purchasing power but has also hurt housing affordability. In light of this, is it preferable to rent a dwelling or to buy a residence?
A wide range of factors must be considered when deciding between buying or renting at a time of high interest rates and everything depends on each person’s circumstances. And yet, the same advantages and drawbacks typically end up tipping the scales.
The Advantages of Waiting for Lower Rates by Renting
- Flexibility: When facing high interest rates, it may make more sense to rent rather than take out a long-term mortgage. It’s easier to move when you rent! You therefore have much more flexibility regarding housing, a particularly important consideration for people who only plan on staying in a dwelling for a short time or whose financial situation is uncertain.
- Fewer responsibilities: Tenants aren’t responsible for carrying out major repairs or paying for regular property maintenance fees. This can be financially advantageous and helpful, especially during periods of high mortgages interest rates when every penny counts. They don’t typically have to perform tasks like snow shovelling or lawn mowing either. They therefore have more free time for themselves.
- Extra cash: Renting provides greater financial liquidity (unless, of course, you’re renting above your means). By forgoing the high initial costs of purchasing a home (the downpayment and welcome tax, for example), tenants have more freedom to invest elsewhere or have more leeway to deal with unexpected expenses.
The Advantages of Buying Despite High Interest Rates
- Protection against rent hikes: By acquiring a house or condo with a fixed-rate mortgage, you will be protected against potential rent increase notices from your landlord. In this way, you can stabilize your monthly payments for the duration of the loan, giving yourself financial peace of mind.
- A long-term investment: Despite fluctuating interest rates, real estate has historically been a solid long-term investment. Purchasing a home can be a form of forced savings, enabling you to build wealth over time.
- Potential deductions: In Québec, homeowners can benefit from tax deductions, such as the first-time homebuyer tax credit. These tax advantages can make acquiring a property more financially appealing. Moreover, such government programs can come to an end quite suddenly, which means you might miss out if you wait for interest rates to come down.
Take Stock of Your Circumstances
With high mortgage interest rates, the decision to buy or rent will largely depend on your financial situation. For example, do you have the necessary downpayment? Will your income cover all related expenses, such as insurance, power bills, repairs?
You should likewise reflect on your long-term goals and your tolerance for risk. If you plan on staying in the same area for several years, if your financial situation is stable, if you’re looking for security and want to build equity, then buying may be right for you notwithstanding high interest rates. Conversely, if you require flexibility, if you prefer to avoid the responsibilities that come with homeownership, or if you aren’t ready to commit to a long-term mortgage loan, then renting is perhaps the wiser choice.
Ultimately, consulting a professional financial or real estate advisor is essential to ensure you make an informed decision in accordance with your unique circumstances!