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Buying your own home is one of the greatest personal achievements most people aspire to. However, it’s also quite challenging — which leads many to wonder whether homeownership is worth the trouble and cost in the first place.
Renting may appear to be more cost-effective, but only in the short term. Conversely, in the long run, owning your own property brings plenty of tangible benefits.
When you’re living in a rented property, landlords usually aren’t very receptive to the idea of tenants renovating their property according to their needs and wishes — even if you’ll actually be improving it.
On the other hand, buying a home of your own means having complete discretion over the decorations — you’ve got complete creative freedom. So, if you decide to experiment with some extremely bright colours for your walls, or renovate your bathroom with a completely wacky theme — there’s no one to stop you or complain.
Plus, if home improvements are successful, they tend to increase the property’s value — so if you own the place, each dollar you invest into renovations and fixes will come back to you if you decide to sell down the line. In fact, depending on the renovations in question, they could raise the value of the property more than you’ve spent to renovate.
Even if you’re not someone who’s thought about renovations and interior decorating before, don’t underestimate the freedom to make any kind of changes you’d like — especially in the long run. Whether you simply want to paint your bedroom a different colour or you want to do a complete kitchen remodel — you’ll have all the options all the time if you’re a homeowner.
Home equity is the difference between your outstanding mortgage debt and the value or market price of your home. And it’s something to consider as you’re thinking about the ways your home’s value might appreciate over time. As that happens, and you simultaneously make regular mortgage payments and pay down that debt, your equity will grow.
Over time, smaller parts of your payments will go towards paying off interest and more towards paying off the actual balance on the loan. Basically, the more of your mortgage you pay off, the bigger part of your home you actually own. And as the value of your home grows, so does the value of your equity.
Of course, building equity takes quite a bit of time — because it takes time to pay down your mortgage. You can speed this process up by making regular prepayments or a larger down payment.
Still, the length of time you’ve owned your home will play a large part in the amount of equity you build and its appreciation — even if you pay off your mortgage faster than necessary, your home’s value will still appreciate at the same pace.
Nevertheless, as you’re reducing the amount you owe for the mortgage, you’re also increasing your savings because the worth of your equity is increasing — similarly to how the money in your savings accounts increases through interest.
While housing can go up and down, people rarely sell their houses every few years — and in the long run, you’re likely to get a full return on your investment in the home and then some, provided you keep the house long enough.
Also, as you increase your home equity, you gain access to other benefits of homeownership — such as the possibility of taking out a home equity loan for repairs or other investments. And if you borrow money based on your home equity to renovate your property, you’re likely to get that value back once you sell the house.
Among other things, homeownership brings a level of monetary stability you simply don’t have as a tenant in a rental property. You’ve got a new sense of reliability because your mortgage payments are stable and predictable monthly expenses. And that’s especially true compared to rental payments, which may be both higher and less stable.
This stability isn’t just financial — having a home of your own means you (and potentially, your family) have a place to call your own; somewhere to settle down and put down roots. When you know where you’ll be living for the next decade or two, you can plan out your children’s education far more easily — and myriad other aspects of your life.
Conversely, living in a rented property means always fearing the possibility of sudden rent increases or the need to move elsewhere on short notice. You do have more flexibility, but you don’t have the communal, social, and educational benefits of homeownership.
Inflation affects rent prices — by some estimates, that’s the main reason why the average rent increases around 4% nationwide, on a yearly basis. Conversely, homeowners with fixed-rate mortgages simply pay the same monthly mortgage amount regardless of the current inflation rates.
Many first-time homeowners in Canada don’t even realize that tax credits are one of the most important perks of owning a home. Nonetheless, homeownership means you may be eligible for certain tax credits, benefits, and rebates that can mean more money for savings, investments, or mortgage prepayments — pretty much whatever you see fit.
With that in mind, it’s worth putting some time and effort into learning about homeowners’ tax breaks in Canada — you could potentially save a pretty penny on your next tax bill.
For instance, you could be eligible for a first-time homebuyers’ tax credit of around $5,000. If you’ve bought your first home in the past year, this could increase your tax refund by $750. Just make sure to check the current home buyers’ amount and see what you can claim. Many people run into a bunch of unexpected expenses after moving into a new home, and those tax savings could come in handy.
Apart from this tax credit, there’s also the HBP — Home Buyers’ Plan, which may allow a tax-free withdrawal from your RRSP — Registered Retirement Savings Plan — in the process of buying your first house. Of course, this is only possible if you or your spouse are Canadian residents with RRSP contributions.
Provided that’s the case, and you’re buying your first home — or you haven’t owned a home in the past four years — you may qualify for a maximum tax-free $35,000 withdrawal from RRSP, that you’ll use as a down-payment on your home.
However, keep in mind that you’ll have to repay the amount you borrow through RRSP contributions in the next 15 years. If the HBP withdrawals aren’t paid back by that time, they’ll become taxable again.
That’s not the end, though — if you’ve paid an HST (Harmonised Sales Tax) or a GST (Goods and Services) tax on a substantially renovated or newly constructed home, you may be eligible for a new housing rebate.
Plus, there are additional tax breaks if you’ve invested in rental real estate. As you declare your rental income on your tax report, you may be able to claim allowable expenses like property insurance, property taxes, advertising fees, and interest on any loans for renovating or buying your rental property.
Also, you could claim CCA — Capital Cost Allowance — as a tax deduction on your rental property renovations. However, while you may be able to claim those renovation costs in the year of their completion, note that you may have to pay taxes for those CCA claims through capital gains when you sell your house down the line. With this in mind, take care while writing off costs related to your rental property renovations.
If you’re buying a home and moving more than 40 km from your current residence to start a new job, launch a business, or attend school — you could potentially deduct your moving expenses from your taxes. There are various potentially eligible moving costs, like hotel bills, moving company bills, and legal fees.
Also, if you’ve been working remotely, you could potentially deduct certain home office expenses. Homeowners who are self-employed, professionals based out of a home office, or working on a commission are all eligible.
Typical deductible home office expenses are office supplies, Internet bills, homeowners’ insurance, and a part of your utility bills.
Make sure to investigate which homeowners’ tax credits you’re eligible for the next tax season — once you buy a home, there are plenty of tax breaks you could qualify for.
As we’ve mentioned already, one of the biggest advantages of owning your property is that this asset appreciates over time. Of course, it’s still important to remember that housing markets are stable in the long run, but still prone to swings — as we’ve seen from the 2008 housing crash.
That being said, if you stay in your current home long enough, you’ll almost certainly be able to sell it for more money than you bought it. However, you still have to consider a few other vital factors — including the location of your home. The value of real estate mainly appreciates due to the worth of the land it’s sitting on, rather than the value of the structure itself. Seeing as structures deteriorate and require maintenance, they’re the part of the asset that depreciates.
This is the main reason why “location, location, location” is such an important part of real estate jargon. It’s the most critical consideration to make while you’re choosing your next home. If you pick an area like North Delta, with great road conditions, parks, and school districts, you’ll be far more likely to earn a lot of money once you sell your home down the line.
Just think of how many rundown homes you’ve encountered — where neglect has risen to the point of making them uninhabitable. However, they’re still not given away for next to nothing if they sit on valuable land — in that hypothetical case, the land is almost certainly worth more than the residence itself due to its favourable location.
People who sell such homes sometimes sell the land with the structure intact, but they’re just as likely to spend a little extra money on simply demolishing the home and selling the land on its own — it may even fetch a higher price that way.
To learn the advantages of owning in North Delta read Why Should I move to North Delta, BC?