Rent Or Buy: The Home Ownership Conundrum
Ask anyone that can afford a house if they would like to own one, and you’re likely to receive a chorus of yeses. But, like all major decisions, it is better to first assess the conditions that surround your life before taking the plunge.
With regards to houses, you can play for one of two teams: the homeowner’s team or the home renter’s. Both have its merits and its downsides, and the advantage of one is likely to be the disadvantage of the other.
So, how do you decide which is better for you? If any of the points below applies to you, your decision just got easier.
You have not saved up for the initial cost of buying a house
Saving up for the house down payment is without a doubt the most important step to home-buying; without which, you are most definitely not ready to own a house. But, there’s more to buying a house than just having the down payment ready, you need to be able to afford other initial costs such as legal fees, loan processing fees, stamp duty, and more. Find out how much cash you may need to buy a house.
You are waiting for better interest rates
If your decision to buy hangs on you waiting for a more attractive home loan interest rate, it is time to reconsider. Many economists are of the opinion that interest rates are likely to go up sometime this year (2014).
Assuming rates do go up, an increase of BLR by a mere 0.5% will result in a 14% increase in total interest paid over the loan tenure. Read more about Base Lending Rates here.
You have existing debt obligations and/or bad credit report
In determining whether to approve or reject your home loan application, banks will take into account your existing debt obligations. The higher the percentage of debt to your monthly income (also known as debt service ratio), the lower your chances of getting your application approved. Debt in this context encompasses credit card, personal loan, and car loan repayments that you are already obligated to service.
Furthermore, any missed debt repayments will adversely affect your Central Credit Reference Information System (CCRIS) report. An unhealthy CCRIS report indicates an inability to repay your debt, thus banks are unlikely to approve your loan application. Read more about how your credit report affects your loan here.
You can see yourself living in that house
Another important thing to consider is how happy you are living in the house you are currently considering buying or renting.
This consideration is likely to be affected by the neighborhood in which the house is located in, nearby amenities, level of congestion, access to highways, and travelling distance to your workplace. Read more about which first property you should get here.
Decision: Buy if you are happy living there for more than 5 years; if not, rent
You don’t want to bear the cost and responsibilities of a homeowner
As a home renter, you are likely to only incur monthly rental expenses in contrast to homeowners who, aside from the initial cost of buying a house and the monthly repayments that they must service, must also service the following expenses:
- Quit rent (cukai tanah) for landed properties
- Property assessment tax (cukai pintu) for landed and non-landed properties. Read more about property assessment tax for properties in Kuala Lumpur here)
- Sinking fund – non-landed properties
- Maintenance fee – non-landed properties
- Utility bills
- Renovation, repairs, and maintenance
Whether buying or renting, the cost involved to have a roof of your head is a substantial one. With that said, the decision should be base on a combination of affordability and contentedness.