Debt Advice for Millennials: Renting Might Be BestApr 23, 2019
Saving enough for a down payment on a home isn’t easy – or even possible – for many young Canadians. So when you finally have that down payment and you qualify for your first mortgage, it can be exciting. But before you commit to being a home owner, it’s a good idea to take a step back and review your finances one more time — especially if you’re carrying personal debt. The best debt advice may be to continue renting, even if you’re ready and able to take on your first mortgage.
Since the 1970s, home prices have increased by thousands, and sometimes hundreds of thousands of dollars, while annual earnings have actually declined. That’s frustrating for Canadians in their 20s and 30s who want to get into the housing market.
For some prospective first time buyers, the urge to own might be driven more by a social norm or expectation than what’s best for their personal finances. While there are benefits to owning a home, including the opportunity to build equity or to sell your home to help fund retirement, there are negatives as well. Home repairs and maintenance may be more than you anticipated, or a growing personal debt load might make it difficult to keep up with mortgage payments.
If debt is a concern for you, here’s why you should think twice before you let go of that rental.
Renting can help you manage your debt load
Most millennials are carrying debt. A 2019 poll conducted by the Angus Reid Institute and The Globe and Mail found that 80 per cent of Canadians aged 26 to 37, and 69 per cent of those aged 18 to 25, are carrying debt.
That debt is non-mortgage debt, so that includes credit card debt, student loans, and other loans. So imagine what adding a mortgage payment along with all the other costs of home ownership on to that would do.
Many people believe they can make their monthly mortgage payment if it is the same as what they pay for rent. But the cost of home ownership includes more than the monthly mortgage payment.
Insurance, property taxes and the upkeep of your house and property are additional costs that quickly add up. Unfortunately, these additional expenses can mean you’ll have less money for saving, spending and debt reduction. It could also mean taking on even more debt.
Renting gives you time to put good debt advice to work
If you’re one of the many Canadians living beyond their means, renting can give you time to get on top of your financial situation. That may mean changing your money mindset or embracing minimalism so you can prioritize debt reduction and saving.
Creating a budget, tracking your spending and setting financial goals can help you take control of your money so you can work towards a stable financial future. And if that future includes home ownership, you’ll be ready to manage those responsibilities without taking on more debt.
Renting helps you keep your options open
It’s nice to feel settled in your own home. But what happens if you’re offered a dream job in another city or you want to relocate for a new relationship? Many young Canadians are in the phase of their lives when major changes — like marriage, career developments or starting a family — take place.
Selling your home, relocating or taking a parental leave could result in you losing money or taking on debt. If you’re not sure that you’re going to be staying put for at least five years, renting (vs owning) gives you more freedom to explore new opportunities.
And in the meantime, work on building up your emergency fund and savings to help you avoid taking on debt when you do buy.
Owning a home can be a dream come true, but it’s also a significant financial responsibility. Don’t rush into it if you’re not sure. Our advice: if you have a lot of debt or if you foresee a life change or two in the near future, consider holding off. One benefit of waiting to buy a home is you have that much more time to bolster your savings, so the transition from renting to owning will be smoother.
Listen to the Happy Hour Ladies discuss the whys and why nots of home ownership.
What advice would you give to someone trying to choose between renting and owning? Share your thoughts with us on Twitter. #LeaveDebtBehind #Rent #DebtAdvice