Buying VS Renting: Which Is More Affordable?
For many people, owning a house usually means securing a permanent home for their family or to generate rental income. On the other hand, renting is ideal for individuals with a lifestyle or job that requires them to be mobile – they would rather invest their finances elsewhere, instead of getting tied down to a 30-year mortgage. Although, you might be thinking, ‘isn’t paying all that rent = dead-money?’
In actual fact, there are pros and cons to both buying a home versus renting one. You can easily put yourself at risk of bankruptcy if you’re not ready to shoulder all the responsibilities that come with a mortgage.
Finding Out Which Is Best For You
Choosing to buy or rent is truly a matter of your personal financial affordability andlifestyle preferences. You don’t have to rush to buy a home because your family and friends are telling you so.
Below is a breakdown of the key benefits and cost in buying and renting a home. This is a good guide to find out which option is better for your current situation based on your affordability and preferences:
|Security of Having a Permanent Home– You and your family will always have a place to live in well beyond your retirement||Monthly Rent is Cheaper– This means you will have more disposable income to spend, save or invest in other areas|
|As An Investment Asset– You can rent out your house as a second income source and leverage as collateral to take out other type of loans||Short Term Contracts & Lower Risk– Have the flexibility to terminate your stay should you decide to live elsewhere or if your financial situation changes unexpectedly|
|Freedom Over Property– Renovate and redecorate your house in any way you like||No Burden To Maintain Property– Your landlord is responsible for handling all repairs and paying for them, not you|
What It Will Cost
|Upfront Down Payment– Minimum down payments start from 10%, which can be a huge sum to save up
– Few banks offer 100% financing for first time buyers, but remember that the more you borrow, the more interest you pay
|Upfront Deposit– The standard requirement includes 1-3 months’ rent as a security deposit, plus 1 month’s utilities deposit
|Monthly Repayment & Interest Rates– The average repayment period in Malaysia is around 30-35 years
– Most housing loans in Malaysia work on ‘variable’ interest rates – when interest rates increase, so does your monthly repayments
– Consider more affordable mortgages on properties in the lower end of your budget – you can save more and upgrade later to a better house
|Personal Cost of Living– Assess your monthly budget if you can afford the rental or if it’s beyond your means
– Every ringgit and cent counts – utilities, astro, phone and internet bills, groceries, eating out, petrol, LRT fare, etc.
|Additional Entry Costs– Other costs payable upfront include Sales & Purchase Agreement (SPA) fees, legal fees, stamp duties and agent’s fee – plus GST, these can come up to several thousand ringgit
– If the entry costs are too much to pay all at once, ask your bank if they have a “Zero Entry Cost” (ZEC) loan available – similar to a zero down payment loan, higher interest rates will apply in return for a ZEC
|Maintenance Fees– This would apply if you’re renting in a condo or apartment
|Assessment Tax & Quit Rent– Assessment Tax is due twice a year for all types of homeowners
– Quit Rent
|Minimum Tenancy Period– Find out what is the minimum length of your tenancy agreement and what is the notice period for termination – if your tenancy length is one year, you are obliged to stay and pay rent throughout that period|
|Maintaining Property– It’s all on you to pay and manage all repairs and required maintenance for your home|
Monthly Payment (Estimates Only)
|Property Price: RM 500,000(i)Monthly Repayment
– Margin of Finance: 90%
– Total Loan: RM450,000
– Tenure: 30 years
– Interest Rate Per Annum: 4.5%
Monthly Repayment: RM 2,280
|Property Value: RM 500,000(i)Monthly Rent
– Rent: RM1,700 (average for city condo)
– Monthly Maintenance Fee:RM170
Monthly Rent: RM 1,870
|(ii)Upfront Cost– 10% Down Payment: RM50,000
– SPA Legal Fees: RM3,950
– SPA Stamp Duty: RM9,000
– Loan Legal Fees: RM3,600
– Loan Stamp Duty: RM2,250
Total Payment: RM 68,800
|(ii)Upfront Cost– Monthly Rent: RM1,700
– Security Deposit (2 months rent): RM3,400
– Utilities Deposit: RM200
Total Payment: RM 5,470
|You are ready to buy a home if you:||Renting is a better option of you:|
|Are financially able to commit to a long loan period.||Do not have a stable source of income yet|
|Can afford the high down payment||Have a very mobile lifestyle and have no plans to settle down in a single location|
|Have a stable source of income||Do not want the burden of maintaining a property|
|Are comfortable to live in a single location||Wish to save your money for other purposes|
Take your time to compare which bank offers the best type of loan package that fits your situation. Consider refinancing your home later on to lower your monthly instalments, interest rates and extend your loan period. You can free up the extra cash and put it to good use.
It is important to always look at your personal finances in the bigger picture and weigh your decision to buy or rent against it. Be smart, consider all options to save and invest – even if you’re renting right now, owning a property still pays off in the long term. Look for a cheaper property in other locations with more affordable mortgages that you can leverage as an investment asset.
Don’t worry about what everyone else is doing – it’s your home, your money, your choice.