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Rent vs Buy Calculator

When looking into the choice of buying a home or continuing to rent, it can be difficult to compare how your finances will look in the future depending on the choice you make.

Homestar Finance’s rent vs buy calculator will estimate your finances up to 30 years in the future, allowing you to make an informed decision about which option works best for you and your livelihood.

How does the rent vs buy calculator works?

Using Homestar Finance’s rent vs buy calculator is a quick and easy way to check your financial position. It compares how much you can save between renting and buying after 30 years, giving you a clear image of which option is better for you.

How to use this rent vs buy calculator
Simply put, you have to adjust the loan variables for each loan, including information like the interest rate, monthly fees, and loan term. After that, the comparison calculator will do the rest of the work for you.

Renting vs buying: Is it better to buy or rent?

Both options have their own benefits, and everyone’s financial and personal circumstances are different, making their capacity to rent or buy dependent on their current situation.

The property market in Australia has seen significant growth over the years –  according to the ABS, 2021 saw the strongest annual growth in property prices on record, with property prices rising 23.7%. There is plenty of evidence to support the notion that buying a house is a better option than renting.

While not everyone can afford to buy, it is usually a far more cost-effective option than renting. When you buy a property, you are purchasing an asset that will someday be 100% yours, and you can sell it for a large profit if the market allows. You can also create equity in the property, which will provide you a significant edge if you ever want to buy another house or borrow money.

Purchasing a home also provides you with more flexibility and security. You are not at the mercy of a landlord as a homeowner, and you have the freedom to do anything you want to the property (subject to council limits). However, depending on your home loan, you may be at the whims of increasing monthly repayments or interest rates.

In contrast, you have flexibility with renting as it requires less commitment, and you are able to move far more easily. You have the option of renewing your lease or simply moving to another property at the conclusion of your current one. This can also make it less confining and allow for more freedom, as renting allows you to choose from a wider range of properties in a variety of locations. However, there are drawbacks to this. Your landlord can raise rent prices or choose to seek new tenants at any moment.

With Homestar Finance’s Rent vs Buy Calculator, you can calculate how much you can save financially if you were to rent or buy. This way you can research the full costs and benefits of your possible living situations all in one place.

What are the benefits of buying?

For those looking for a long-term housing solution, buying your own property may be the best option possible. There is security in owning your own home, and having control over your property and its repayments also means that you can create value for yourself over time.

Other benefits of buying include:

  • Saving money: While making mortgage repayments may feel similar to paying monthly rent, it may actually save you money in the long run. Interest is not the only aspect paid off in repayments, but principal as well. This means your money is going towards owning more of your home, which gives you exponential value in the future, unlike rental payments.
  • Security: Choosing to rent means entrusting your housing situation to a landlord, who may decide at any point that they do not want you to rent their property any longer. In contrast, buying a home means the security of having a permanent residence. You are the one who decides when to move out or if you want others in your space.
  • Home equity: Owning a home means the chance of building equity, which is the amount of property you own. A substantial equity can be withdrawn to fund projects, large payments, or to pay off debts, which makes owning a house appealing.
  • It is your own space: If you own a home you may decorate it however you see fit, including choosing to renovate or remove spaces. By improving your property, you can also improve its value, making your creative freedom hugely beneficial if you decide to sell in the future.
  • Choose how and when to pay: If you choose to rent, you will never have control over the costs of living in the property. In fact, your rent can increase at any point of your tenancy. Although owning a home does come with expenses like mortgage repayments, property or strata insurance, as well as council rates, these rarely unexpectedly rise in costs. Additionally, if you have chosen a fixed rate home loan over a variable, you will be able to control the rates you pay.

Ultimately, there are many benefits to buying – you’ll own the property you are spending money on, and you’ll be able to benefit from a potential increase in value over time. There are also numerous government grants that can significantly reduce short term costs associated with buying a property.

When it comes to your personal situation, there are a number of scenarios in which you might be more suited to buy than rent – these might include having enough money for a deposit (or the ability to save for one), having family needs that are better suited to buying a property, or wanting to work towards achieving investment goals.

What are the benefits of renting?

While there is security in buying your own home, that does not mean it is a viable option for everyone. The purchase price and home loan fees that come with owning a home can be out of reach for many people, making renting the only option for those that want a place of their own.

Furthermore, there are plenty of other benefits that coming from renting property (many of which make renting a better short term decision), including:

  • No deposit: When renting the only up-front cost you will need to pay is a security deposit, which adds up to a month of rent. This deposit is even paid back once you move out, so long as you do not owe the landlord any outstanding debts, and have not left the property in a damaged state. In contrast, buying a home requires a deposit (or down payment) that is usually around 20% of the property’s value. This is a lot more costly than a security deposit, and many individuals will find it difficult to have this much money on hand. There are grants available for home buyers, especially first home owners, but it can still be pricey for many.
  • No additional bills: Your landlord has full responsibility for the property you are renting, meaning that they are the ones who must pay for any maintenance or repair fees, as well building insurance, land tax and any additional costs. If you own a home, you will be the one taking on this responsibility, which can become expensive over time, especially if several unexpected problems occur at the same time.
  • No concerns about property value: For those owning a home, their property value decreasing can impact the costs of property taxes and mortgage. A rocky housing market does not mean much for a renter, however, which is hugely beneficial.
  • Easy to move: Renters can choose to move anytime and anywhere, whereas owning a home means remaining stationary. Owning a house in an expensive area is also incredibly difficult for most people, but you may be able to rent since there are more affordable monthly rent payments. You can also choose to downsize or move at the end of your lease agreement if you need a more affordable housing scenario.
  • Fixed rent: When you sign a lease agreement, you only have to pay the amount specified on the document. Any further rental increases are done with notice, allowing you the time to budget accordingly. While fixed rate home loans can allow homeowners the same criteria, any other mortgage will not grant you the same leeway.

Costs to consider when deciding to rent or buy

One of the most integral parts to consider when choosing to rent or buy is their costs. Both have various fees and weekly costs to maintain your ownership or tenancy. Which option you choose often relies on your financial situation, so it is important to understand what your money will be going towards in relation to your housing situation.

Buying a property

Buying your own home, or even an investment property, can come with several ongoing or upfront payments. This will generally range from establishing ownership to maintaining the property’s condition, but most homeowners will find themselves budgeting for their home loan and general household costs. However, choosing to begin a home loan pre-approval before applying for a house is often a good way to get an idea of your financial and personal situation. You can speak to Homestar’s loan specialists right away if you are interested in getting an idea of what your lenders can give you.

Mortgage repayments
When you own a house, it is likely that you have taken out a home loan in order to afford the property. When applying for this mortgage, you borrow an amount of money, known as the principal, from a lender. This sum is to be paid back over the length of a loan term, which is often done monthly, and is calculated as a part of the principal owed. These are the mortgage repayments, which often also incorporate an interest charge into each repayment.

The interest is calculated based on the formula of: your outstanding debt multiplied by your interest rate, divided by your yearly repayments. That is, if you repay your mortgage loan monthly, it will be divided by 12. This interest is added with principal owed to create your overall repayment costs.

In order to guarantee ownership of a home, you are required to place a deposit (sometimes referred to as a down payment). This house deposit is often calculated by lenders as 20% of the home’s value since any lower you may have to pay Lenders Mortgage Insurance. The higher the deposit, however, the less you will need to borrow to finalise the purchase. This also guarantees you will have lower monthly payments, as well as less to pay overall in interest.

Lenders mortgage insurance (LMI)
Lenders Mortgage Insurance (LMI) is insurance that protects the lender in the event the borrower defaults and the security property is sold and the funds from the proceeds of the sale are not enough to discharge the loan. The LMI then pays the Lender the shortfall. The rights to recover the shortfall from all of the parties on the loan (borrowers) are then transferred across to the LMI who will pursue the shortfall. The cost of LMI insurance is a one off payment at the start of the loan and should not be confused with Building Insurance or Income Protection Insurance. It can be added to the loan amount.

Other upfront costs
Taking out a home loan and owning a house require other fees to be paid upfront. Whether or not you need to pay these fees, including how much they will cost you, is often determined by which state or territory you live in. These costs can include:

  • Transfer fees
  • Stamp duty
  • Mortgage application and registration fees
  • Legal and conveyance fees
  • Building insurance
  • Inspection fees

It is advisable to look into what the rules and costs are of your state or territory when trying to buy a house. This way you can get an idea of what upfront costs you will need to pay.

Maintenance costs
You have full responsibility for your property, including any necessary maintenance or repair costs that may arise. You may also wish to look into renovating your building, which can become pricey fairly quickly.

Renting a property

Although you do not own the property you are living in, that does not mean that renting does not come with its own costs. This is especially true as the weekly rent costs of major cities along the eastern sea board have been seeing a significant rise in recent years. Regardless of what type of property you are renting, or where you are renting, you will always need to pay rent.

Regular rental payments
Your rental lease agreement outlines the amount of rent you are expected to pay, as well as what increments you must pay it in. Anyone who is renting must make this payment, but the exact amount is dictated by your landlord and their evaluation of the building, as well as the average costs of the area you live in. Most landlords will also ask for you to pay 2-3 weeks in advance when you sign a lease.

Ongoing fees
Beyond paying rent regularly, there are few other ongoing fees you will have to pay when renting. Most commonly is the necessity of paying for utilities. They are rarely included in the rental payments, which means you will have to regularly set aside money for your amenities. Some landlords will only charge for electricity and gas, while others may require you to also pay for water and internet.

Additional fees
There are other additional fees included in signing up for a rental, often being one-off payments upfront. The main one is the rental bond, which you will need to pay every time you sign a new lease. This will eventually be returned to you once you move out unless there are damages to cover.

If you have a pet you may also need to pay a pet bond, but this is often dictated by what state or territory you live in, as well as your landlord’s preferences. For example, charging a tenant a pet bond in NSW is illegal, but any damages caused by the pet must be covered by the tenant.

You are likely to also be required to pay a removalist fee and a utility connection fee when you move in. Otherwise, you will find situations like breaking your lease early causing extra fees to arise. Further costs may be added by your landlord if you have caused damages to their property, so it is important to take care of your home for the next tenant.

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