5 times when home ownership isn’t worth it financially
Despite our obsession with home ownership in Australia, it's not always the right choice.
There's a common saying that "rent money is dead money". This implies that unless you're paying off your own mortgage, your money is going to waste.
This isn't necessarily true.
Sometimes paying rent instead of paying off a mortgage is not only an okay thing to do but actually a better financial decision. Here are 5 times when home ownership isn't worth it financially.
1. You live in an area you love, but house prices are high
Instead of being "dead money", renting allows you to live in areas that you could never afford to buy in, or where you'd be a slave to a huge mortgage if you did buy there. Plus, you can often rent the same house for less money than if you owned it and had a mortgage to repay.
You can live in an expensive suburb with lots of cafes and restaurants, is near the beach, has easy access to multiple public transport options and is close to your workplace or children's school and pay less than you would with a mortgage.
Renting doesn't mean you're not doing anything with your money. You can still invest in shares, contribute extra to your super and even buy an investment property elsewhere (called rentvesting) to build your wealth. These are things that you might struggle to afford to do if you're paying off a large mortgage.
2. You need flexibility to move
If you move a lot or need the option to be able to move, then renting could be a better choice for you. Home ownership comes with a lot of expenses if you're buying and selling frequently. There's stamp duty, taxes and real estate fees to think about when you buy and sell too.
While you're still moving around, renting gives you the flexibility to move quickly and easily and with fewer costs. And if you're young and still not quite sure where you want to live, then renting is a great way to try different areas to find somewhere you love before committing to a mortgage.
3. You can only just meet your repayments
If getting a home loan means you'll be able to just meet your repayments each month, it's probably not a good idea. Remember, home loan rates do change and at the moment they're on the way up. The RBA has increased the cash rate twice this year already.
A rise in the case rate means a rise in your home loan rate, which means your monthly mortgage repayments would suddenly go up. If you're only just meeting your repayments as it is, you're going to really struggle when rates increase.
Renting in the same area will likely be cheaper. It means you'll have a bit more wriggle room each month to save for a home a bit later down the track.
4. When it's a seller's market
When property prices are surging and it's a seller's market, you could end up spending a lot more on your home. This also means you'd need to take out a bigger home loan and will pay more in interest repayments over the life of your mortgage.
There's nothing wrong with sitting on the sidelines and renting for a little while to see what the market does, and making your move when prices are a bit more stable.
5. You don't have a lot of savings
When you own a home, your mortgage repayments are just one of many ongoing costs. There's the cost of buying (stamp duty can be a killer), ongoing council rates, insurance bills and never-ending maintenance to think about as well as "surprises" along the way.
If you don't have an emergency savings fund set up, then it could be a better idea to rent for another couple of years until you've built up your savings. Otherwise, you're setting yourself up for financial stress and the possibility of defaulting on your mortgage when you are faced with an unexpected cost.