While many of us believe that owning a home is an important step toward financial security, it's not always the best financial choice -- there are many reasons why you shouldn't buy a home. If any of these five reasons applies to you, consider taking a step back and reevaluating your options.
1. The down payment will empty out your savings account
Be realistic with yourself. Even if you feel confident about your job security, in today's fragile economy, you never know what might happen. It's important to have emergency savings in the bank in the event you get hit with a financial disaster -- like a divorce, medical problems or a family emergency.
â€¨â€¨The Home Buyers' Plan (HBP) might also be a tempting option for those who don't have enough for a down payment in their savings accounts -- but have money invested in RRSPs. But take into consideration that utilizing the HBP doesn't give you “free” money. You might not be borrowing the money from the bank as a loan, but borrowing from your future could be just as detrimental. You will have to pay back the HBP eventually, and every day that money isn't in your account, you are losing out on the magic of compound interest.
â€¨â€¨If buying a home and finding a down payment means emptying out your savings account or draining your RRSPs, it might be better to keep saving before going house hunting.
2. You think buying a home is always a good investment over renting
Even if you've found a great home that you can afford, if rent in your neighbourhood is significantly cheaper than a mortgage payment, it makes sense to keep renting. Save the difference between your rent payments and what you would pay for a mortgage. Then, when the real estate market turns, you will be in a great position to buy.
3. You think paying a mortgage is like having a forced retirement savings plan
During the housing boom, people thought of their homes as an investment, or a savings plan for the future. However, that's just not realistic anymore. For the first 10 years of a 25-year mortgage amortization, over half the money you put toward your mortgage will vanish in the form of interest payments. For example, after the term is over on a $300,000 mortgage with a five-year fixed rate of 3.5 per cent, you will have put $89,868.60 toward your mortgage -- with $41,159.99 of that amount going toward the principal, and a staggering $48,708.61 disappearing to cover interest.
4. You have no interest in maintaining a home
When you rent, you don't have to worry about your dishwasher leaking, your stove not working or the pipes bursting -- those are things that a landlord takes care of. As a homeowner, you are your own landlord. All of those problems suddenly become your problem. It's your responsibility to maintain both the inside and outside of the home, shovel snow from the driveway and fix things when they break.
5. You don't plan on staying for more than a few years
Consider where you want to be in the next five to 10 years. If you are thinking about getting married, changing jobs or having children, it might be a good idea to postpone purchasing a home. The costs associated with buying a home are high, but it costs even more to sell -- and your financial situation will be changing, too.
Remember that owning a home isn't for everyone. Buying a home won't necessarily bring you more wealth, and renting doesn't mean you're throwing your money away, either. Carefully crunch the numbers -- and the facts -- for yourself to see if buying a home is a good financial decision for you.
Krystal Yee is a marketing professional living in Vancouver. She writes about personal finance at Give Me Back My Five Bucks, and the Toronto Star's Moneyville.ca. You can reach her on Twitter (@krystalatwork), or by e-mail at firstname.lastname@example.org.
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