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Stay at home, rent or buy? Kit’s story

Young girl looking to buy a townhouseKit has always lived at home with her parents in Hamilton, Ontario. But now, for the first time, she is thinking about moving out on her own. At age 25, she has finished school and been working full-time for 3 years. Her pay adds up to $3,000 each month and has already saved almost $15,000.

The question is: should she stay, rent or buy? Which is the best choice financially? Here’s how she assesses her options.

Option 1: Staying at home

If Kit stays at home, her parents have asked her to pay $500 rent. This is the lowest cost option, of course. She plans to invest the money she saves and buy a home one day.

Option 2: Renting a townhouse

Kit next looks at a townhouse available for rent not far from where she works. She will pay her own utilities and maintenance. The rent will cost $850 per month and utilities on average will cost another $150.

Option 3: Buying a townhouse

Kit looks at a similar condo townhouse for sale in the same area. The asking price is $142,000, and if she makes a 20 per cent down payment, her mortgage will cost $660 a month. She will also have the same utility costs to pay as in option 2, plus extra costs: property taxes, a condo fee and maintenance, for example.

Comparing Kit’s options

This chart compares Kit’s three options. It includes the costs of her rent or mortgage, plus any other monthly housing costs. Note that:

If Kit stays at home or rents, she will pay less each month than if she buys. She could save and invest the difference each month.

If Kit buys, she will face some initial costs equal to 5 per cent of the purchase price. She will face similar costs when she sells.

As she pays down her mortgage, Kit will owe less to the bank and will own more of the value of her home. These gains will help offset her costs.

We assume here that house prices will rise an average 4 per cent each year. We also assume that rents will rise 3 per cent each year.

Rent/mortgage $500 $850 $660
Condo fee/maintenance $150 $180
Property taxes -- -- $235
Utilities -- $150 $150
Insurance -- $30.00 $100
Cash outlay per month $500 $1,180 $1,325
How much Kit could save each month if she doesn’t buy $825 saved $145 saved --


In Kit’s case, the difference is small if she rents or buys. The bigger decision is whether to live at home – and save big bucks – or leave. For instance, let’s say she lived at home and saved $825 each month. If she invests and grows her money just 4 per cent, she could have socked away $10,725 after just one year. She can also invest her down payment.

If she rents, she could save and invest $145 each month. If she invests and grows her money just 4 per cent, she could have $1,885 after just one year. Again, she could also invest her down payment – minus her rent deposit of $850 (one month’s rent).

If Kit buys the townhouse, she would start to pay off her mortgage. This means she will own more of her home each year. The risk here is that if house prices drop, she may lose some of those gains.

What Kit decides: Kit realizes she does not have a large enough down payment yet to buy the townhouse. She decides to live at home until she does. This will take her about a year and a half more. If she rented instead, it would take close to 10 years to save up the down payment, based on her current income.