When you first graduate from college or university, chances are you will be strapped with loans or do not have much money in the bank or both. The big question looms. Should you consider buying a home? Or should you rent for a while?
The fact is, purchasing a home is still one of the best investments you can make. When the time comes to retire, you can put all that equity you’ve built up to good use in the form of a reverse mortgage.
What’s a reverse mortgage? When you turn 62, you can apply for a reverse mortgage that allows you to tap into all that equity you’ve been building up for years by paying your monthly mortgage religiously.
What this means is the sooner you can purchase a home for yourself and your new family, the larger the investment and the more money you can get out of it later in life. If you’re approved for a reverse mortgage, you can receive your proceeds in one lump sum payment or equal monthly disbursements.
You need never pay the loan back unless you leave the house or die. Even if you’re just starting out, you can figure out how much of a reverse mortgage you might qualify for in years to come by using this reverse mortgage calculator.
But back to the other original premise. Can you actually afford to purchase a new home when you’re just beginning your career, or is renting a better idea? According to a new report by The Globe and Mail, while most people prefer to own their own properties, there are some definite advantages to renting, especially if you’re just starting out.
However, the difficult dynamics of today’s bubbling housing market are said to be negating most of the financial advantages of renting, even considering rising mortgage rates and housing prices. It should also be noted that the hardships of the recently high costs of renting have become an issue for both millennials and Gen Zers or people in their 20s and 30s who are just beginning their careers.
Having conducted a survey in early 2022, The Globe and Mail discovered that a major portion of renters was in their 60s and up. They were renting to avoid the high costs of home ownership. In other words, for many retired Boomers, owning a home is no longer as affordable as it once was, especially if they are living on a fixed income.
While housing prices have actually fallen somewhat from a peak in the first quarter of 2022, the rise in mortgage rates has offset the savings. RBC economics recently stated that purchasing a home in North America is generally becoming unaffordable for young and old.
The strained housing market has become a choice between stability and freedom, or so states The Globe and Mail. The strong demand for rentals in the post-pandemic world has given landlords all the impetus they need to recoup the cash they lost during COVID-19. That said, the average rents in both the U.S. and Canada have risen by more than 20 percent over a year. For example, the average cost of a one-bedroom apartment in Toronto jumped from $1,750 to $2,500, while walkup apartments in New York City have gone from an average of $3,000 per month to $5,000.
The major benefit to renting is that you pay much less on average monthly expenses over the long run than a homeowner. Property owners are expected not only to pay the mortgage but for upkeep and maintenance (a new shingle roof for an average ranch home can cost $5,000 to $7,000), plus elevated utility and insurance costs. However, with rising rental costs, renting isn’t offering the cash savings it once did since wages are not rising.
Renters just getting started in their careers are finding that it takes more time to save up for the down payment required for a new home purchase. This means the housing market is not getting as many first-time buyers as it used to.
Lifelong renters won’t be building equity, so they are not eligible for a reverse mortgage when it comes time to retire. But they can build real wealth by investing the money they save by not having to pay the costs associated with home ownership.
In other words, while homeowners are putting all their money into property investments, renters find themselves more liquid when it comes to cash on hand.