Should I rent or buy by alendar


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									Should I rent or buy?                                                                                1
There are many arguments for and against homeownership. When deciding whether to rent or buy,
you need to weigh up your financial capacity, lifestyle and personal goals.
A house is more than just a roof over your head: it creates a sense of stability and identity for you and
your family. It offers privacy, independence and self-sufficiency. Owning a home gives many people a
feeling of permanence, security and belonging to a community. Owning your own home also gives
you the freedom to decorate to suit your individual tastes and needs. Spending money on improving
your home may also improve its value.
Financial advantages
Owning your home can offer a number of financial advantages including:
• Scheduled savings: When you own a home, your monthly mortgage (loan) repayments are a type
  of savings plan. Over time, you may accumulate equity (increase your ownership) in your house.
  People renting their home continually pay rent to a lessor and do not benefit from any increase in
  the value of the property.
• Stable housing costs: Inflation causes most things, including rents, to increase over time. In
  contrast, your mortgage repayments will remain around the level originally agreed, subject to
  changes in interest rates. This allows you some certainty in budgeting for the future. It also means
  as the cost of living increases, your mortgage repayments will remain stable and not increase with
  inflation (subject to changes in interest rates).
• Equity build up: Home ownership may increase your personal net worth over a period of time. As
  you make repayments and build up equity (actual ownership), you could use your home as security
  to borrow more money for other things such as home improvements or investments. When you pay
  off the full amount of your mortgage, you will be able to enjoy life free of rent or mortgage
  repayments. Your home may also increase in value and be worth more than you paid for it.
Owning your home is a big investment in time, energy and money. Repaying a home loan is a long-
term commitment. Being prepared for owning a home means understanding the risks and
responsibilities of buying property. It is important not to over-extend yourself (borrow too much or
commit to too high repayments) and to ensure you have money left for everyday living expenses as
well as emergencies. You should think about how things such as interest rate rises or a loss of
income would affect your home ownership goals. Some possible disadvantages of home ownership
are listed below:
High costs
You can usually expect to pay more in mortgage repayments as a home owner than you did as a
renter, especially in the first few years. There are also extra ongoing expenses such as council rates,
insurance and maintenance. Initial investment costs can be particularly expensive and may include a
deposit, application fees, legal (conveyancing) fees, stamp duty, insurance, and moving costs. This
increased financial commitment as a result of home ownership can change your lifestyle as there may
be less money available for holidays, eating out and entertainment.
Decreased mobility
Home owners cannot move as easily as renters. The costs of buying a new home and subsequently
selling the property could make moving expensive. If you plan to move to a new location within the
next year or two, now may not be the time to buy a house.
Repairs and maintenance
When you rent a property, the landlord is responsible for repairs and maintenance. When you own a
property, you are responsible for taking care of repairs. The costs of repairs and maintenance on an
older home are usually more than on a newer home. As a home owner, you will need to put aside
regular savings for unexpected repairs and general maintenance.
Possibility of repossession
Failing to keep up your repayments is called defaulting. A lender may repossess and sell a property,
and sue for the balance of the loan should a borrower default. Mortgage insurance covers a lender in
the event that the sale of a property is unable to cover any outstanding loan amount. While mortgage
insurance premiums are usually paid by the borrower, this protects the lender not the borrower. A
mortgage insurer is subsequently able to pursue you for the outstanding debt.
Sale of property
You may not be able to sell your home quickly if you need or want to move to a new location. The
sale would depend on market conditions, such as demand for properties in the area and the current
economic climate.
Property value
Properties can increase or decrease in value over time, in response to economic and market
conditions. This is one of the financial risks of home ownership. In fact, should you buy your home
during a period of high demand, as demand for homes slows or decreases, you could find that your
home decreases in value and leaves you owing more under the mortgage than your home is worth.
The value of your home may also decrease as a result of changes in your neighbourhood or
community. In some urban and regional areas of the State, there is no active resale market and it
may be difficult to sell your house in the future for what you paid for it. A decreased value of your
property means you may still owe money, even though the property has been sold. It may even
prevent you from selling your home, as you may be unable to repay the outstanding mortgage.
Renting is usually cheaper, more flexible and less complicated than owning a home. Apart from your
lease obligations, if something goes wrong the owner pays to fix it, not you. Renting is also about
lifestyle; often you can afford to rent a nicer property than if you bought one, or you may choose a
more expensive area. For some families, renting is the best option.
Renters have lower initial costs and lower ongoing costs. Usually renters pay two weeks rent in
advance and a security deposit (bond) equal to four weeks rent.
Financial risk
As a renter, your only chance of financial loss of investment is your rental bond, and the commitment of
paying rent for the period of the lease. As an owner, your chance of financial loss can be quite high.
Regular living costs
Your monthly living costs are easy to predict, as the rent is generally fixed for the term of the lease.
You can move house relatively easily as your needs and income change. Renting is often also easier
if you travel a lot and can be a good way to learn about different areas before you buy a home.
Alternative investments
As a renter with a regular savings plan, you may be better off investing in other areas, such as
shares. Instead of your home being your only investment, this could allow you to vary your
investments and minimise your risk.
No equity gains
Through monthly mortgage repayments, a home owner can gradually build up an asset. As a renter,
you do not gain any equity (that is, any ownership interest) in the property you are renting.
No ability to renovate
You do not have the freedom to renovate, redecorate or change your home to suit your needs.
Less security
If you rent, you face the possibility of your lease not being renewed, rent increases, and of being
evicted if problems arise. Each time you have to relocate there will be expenses involved.

This material is produced by the Queensland Department of Housing. It provides general
information only. It is not intended as advice tailored to your specific circumstances, and
must not be relied upon as such. You should make your own enquiries and seek independent
professional advice tailored to your specific circumstances.
Free interpreter services are available to people who have difficulty speaking or understanding
English. Telephone the Translating and Interpreting Service on 131450.
                                                                                              January 2008

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