Buying a home is one of the biggest financial decisions most people make, and there are plenty of arguments in favour of home ownership. Security, pride, and investment potential are all good reasons to buy. On the other side of the coin, renting means you don’t have to pay for maintenance or taxes. But if you don’t own, you are also subject to rent increases, while a mortgage payment will remain the same.
Yet another good reason to own a home comes out of Statistics Canada National Household Survey for 2011 (NHS). It shows renters are more likely to be financially over-extended. While this might seem to fly in the face of logic – after all, homeowners have all those other expenses – it does illuminate an interesting difference between owning and renting. To qualify for a mortgage, homebuyers have to meet stricter guidelines than renters do for a lease. Additionally, the process of purchasing can help people think about a long-term financial plan in ways renters never do. With the assistance of a Calgary mortgage broker, homebuyers can actually choose a mortgage that fits in with their future financial goals.
Ownership and Affordability
In 1971, when Statistics Canada began tracking home ownership, 60 per cent of Canadians owned their own home. The survey for 2011 showed that number is now at 69 per cent. with most of the growth happening in the last twenty years. While that statistic might not be particularly startling, a steady increase in home ownership is an encouraging trend.
The most striking detail from the current data relates to affordability. According to the survey, over 40 per cent of renters spent more than a third of their gross income on housing (compared to 26 per cent for home owners). Of course, the rate of affordable housing varies across Canada with the most affordable being in Saguenay, Quebec, and the least affordable a little closer to home in Vancouver.
For Statistics Canada, the thirty per cent standard has long been a threshold for determining affordability. It is no coincidence that this measure is about the same as most mortgage providers’ Gross Debt Service (GDS) ratio for determining whether or not a potential buyer can qualify for a mortgage.
The affordability gap between owning and renting isn’t the only significant factor reported in the survey. The NHS also found that couples with children tended to be less over-extended than renters living with roommates or those who were single parents. While reliable income is probably a factor, the importance of financial planning can’t be ignored.
Age and Income
The NHS found that home ownership varied with age and income. As people grow older and have greater earning power, they are more likely to own than rent. Unsurprisingly, the rate for home ownership rises up until about age 75, and then it begins to decline. The three youngest groups surveyed showed the greatest differences in ownership rates. For those under 25, only 23.8 per cent owned a home. With the next bracket up, 25-29 year olds, that jumped to 44 per cent. By the ages of 30-34, over 59 per cent owned a home! For all three of these groups (under 25-34), home ownership became more likely if a household’s combined gross income is $60,000 or more per year.
Home Ownership and Financial Security Go Hand in Hand
Simply sitting down and developing a financial plan could make all the difference. By taking steps toward home ownership like saving a down payment and meeting with a Calgary mortgage broker, soon-to-be former renters can begin down the road toward financial security. All potential buyers should take a few moments to evaluate their finances before jumping in and applying for pre-approval for a mortgage. At Mortgages by Candice, we recommend taking a few preliminary steps before starting the pre-approval process. Many different factors impact a home loan, so by planning carefully a buyer is more likely to get the best Calgary mortgage rates and terms.
We know new homebuyers need a little guidance to avoid missteps along the way. We’ve put together a guide describing the five common mistakes homebuyers make that can put a real estate deal at risk. Each of them could undo all the hard work a potential buyer has put into getting pre-approved.
The research is in: homeownership is higher than it’s been in forty years. Now is a great time to become a homeowner and put renting in your past for good. Calgary mortgage rates are at near-record lows, and with the help of an experienced broker, you will have the professional guidance you need to select a mortgage that fits in with your financial plans for the future. Contact Mortgages by Candice today to get started.