Consider the following example:
Monthly payment $3000
Annual property tax $2000
Annual Increase in home value 0%
Down Payment $10000
Interest Rate 6%
Monthly rent $1000
Year comparison 10
You should Buy!It looks like you should Buy based on the assumptions you have given us.
Why? If you buy for $452842.14 (the maximum you would qualify for) you will pay down your mortgage of $442842.14 by $105493.48 over 10 year(s) with your Principal and Interest payments of $2833.33 per month, plus your property will increase in value by $0 for a total investment growth of $105493.48.
This total is greater than your total investment growth from renting, which is approximately $40328.31 after 10 year(s). This was calculated by growing the monthly savings from renting ($2000.00) plus your current downpayment of $10000.00 at a standard after-tax rate of 4% per annum.
The main problem is in the amount saved each month renting. Even if this money is stuffed underneath your mattress it would add up to $240,000. Substantially more than the 40K determined by the calculator.
Thanks to poster lukecs from Alberta Bubble Blog for finding this.
Note: Even with $10/month rent it still returns the same result.
4 comments:
The problem with a Rent Vs Buy calculator is it doesn't take into account the fact that Real Estate that is at historical highs could drop significantly in price and than you are in a pile of hurt. We saw house values plummet once already in Alberta after the last Bust, it is conceivable that it could happen again irregardless of the price of oil or Tar Sands activity. Just look at Japan as an example of what can happen after a housing Bubble, even when your economy is strong.
I think that the example given was quite forgiving. How about the following extreme example:
Monthly payment if you bought:
$3000
Annual property taxes:
$3000
Annual increase in home values:
0%
Years of comparison:
10 Years
Down payment:
$25,000
Interest rate:
8%
Monthly rent:
$10
You should Buy!
It looks like you should Buy based on the assumptions you have given us.
Why? If you buy for $385318.60 (the maximum you would qualify for) you will pay down your mortgage of $360318.60 by $70281.00 over 10 year(s) with your Principal and Interest payments of $2750.00 per month, plus your property will increase in value by $0 for a total investment growth of $70281.00.
This total is greater than your total investment growth from renting, which is approximately $65117.27 after 10 year(s). This was calculated by growing the monthly savings from renting ($2990.00) plus your current downpayment of $25000.00 at a standard after-tax rate of 4% per annum.
Wow! I mean how can they get away with this?
For almost every possible combination it says that you should buy. I have contacted the Competition Bureau regarding this calculator and filed a complaint. Not only is it highly unethical it is most likely illegal. If you have been negatively affected by the calculation I recommend to file a complaint with the competition bureau, you can submit an online complaint form:
http://tinyurl.com/3xp8xd
By the way, this is not the first time that MLS has had an inquiry by the Competition Bureau. Read the story from the CBC here:
http://tinyurl.com/2dd3ku
Yup, basically any combination it says you should buy. This thing is busted.
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