How Buying a Home Could Build You an Equity of $77,156


Recent stats indicate that the typical age for a first time home buyer is not what it used to be. The 25-34 year old age demographic is struggling to understand the value in this type of investment. Buying a home may actually be one of the safest investments you can make at a young age.  It is an investment in yourself and more importantly it is a place to call home.   Some even say renting is cheaper than buying a home.  However, there are two factors that make a home purchase sooner than later a good decision and the first is “forced savings or passive investment strategy”.  You need to live somewhere so instead of making someone’s else’s mortgage payment make one to yourself.


A buyer purchased a condo this year for $250,000 and put down the minimum 5% down payment or $12,500.  For example if the buyer was able to save up $3,500, use their RRSP account for $3,000 and get a gift from their parents totaling $5,000 or any combination of the above. There are a lot of flexible options for coming up with a down payment.


The buyer would now have a mortgage for $247,000 and a mortgage payment of $1,200, condo fees of $250 and property taxes of $150 per month.  The new home cost is $1,600 per month, the buyer has now become a homeowner and invested in the future. The buyer could have potentially saved some money by renting, but now has a place to call their own. It is really two birds with one stone, you are paying to live while also securing a stable long term investment.


Fast forward five years, even assuming that the condo price has stayed the same (Average appreciation of value is historically 1-3% per year). After making the mortgage payments, the mortgage balance has decreased to $212,126 and equity of $37,873.  Not bad for just making a rent payment to yourself.


Even more interesting is 10 years from now the remaining balance on the mortgage would be $172, 843 and have built up equity of $77,156. Had the buyer stayed renting for $1,400 per month for the past 10 years they would have paid $168,000 towards a landlord’s mortgage. This makes a strong case for home ownership as opposed to renting.


So how do you start?
  1. Talk to a licensed mortgage broker who will walk you through the pre-qualification process and establish a plan for homeownership.
  2. Figure out your down payment.  There are more options than you think,  savings, RRSP’s, TFSA, a gift from parents or even borrowing funds for a down payment are all options.
  3. Find a trusted realtor that will educate you on the different types of properties and areas that will fit your needs.
  4. Move into your first home.