Canadian Rent Vs. Buy Mortgage Calculator

Welcome to the Advanced Canadian Rent vs. Buy Mortgage Calculator by Joycer.

Here’s an explanation of how it works.  I built this calculator from the point of view of a competition. Two people with identical incomes and savings are going to try to build up the highest asset values, one will buy a house (and possibly have some money left over to invest) while the other will rent and invest their savings. The monthly expenditure for owning is the mortgage payment + taxes + strata/maintenance compared to the renter who just pays rent.

Whoever has a surplus compared to the other gets to reinvest the money at a given rate. For example, if the ower pays $2000/month in mortgage payments, $300 in strata, and $250 in taxes while the renter pays $1500, the renter will invest an extra $1050/month (2550-1500). If by some miracle the owner was paying less, they would be able to bank the difference at the same rate as the renter (trying to keep it fair).

If a yearly rental increase is given, this amount is taken into consideration when calculating who gets to put the extra money away. For example (to make the math easier) say the owners cost was 1100/month while the renter paid 1000/month with a 10% annual increase, then in the first year the renter would put 100/month away, neither would invest any extra in the second year (both pay 1100 after the rent increase), and the owner would be able to invest 110/month in the 3rd year (rent is now 1210), etc…

Text boxes:

Savings – money that will be invested by the renter or used in some portion by the owner to buy a house (both have the same savings to start)
Closing Costs – Fees associated with buying the home (land transfer tax and legal fees). If the renter intends to buy at the end of the given time frame they may want to leave this blank since they too wil have to pay closing costs. On the other hand realtor fees could also be included since the owner would have to sell the home in order to realize its value.
Down Payment – amount of the savings to be used for the down payment.
*Note – The closing costs + down payment should not exceed the value of the savings (labels turn red if you make this mistake)
Interest Rate, Ammortization (in years), taxes, strata/maintenance and monthly rent probably don’t need an explaination
Annual Increase – The amount you expect your rent to increase every year
Return on Savings – The annual rate of return for savings (this value is used by both the owner and the renter)
Years to Rent – This is the amount of time the scenario will play out, it allows you to look at a shorter term than most mortgage calculators, in which most of your payments go to interest and very little to principal
Step Size – The amount each movement of the slider will make to the textbox it changes

Monthly Payment – The amount for the mortgage
Total Interest Paid – amount of money that the bank will keep due to interest
Total Expenditures – Taxes and maintenance paid by the owner
Cost of Ownership – Interest Paid + Total Expenditures (money that can’t be recovered ie. like rent. This is meant to give you a comparison of how much money you threw away by owning)
Principle Retained – How much money you retained after all the mortgage payments made during the competition
Rental Difference – This is the money saved by owning instead of renting (if it’s more expensive to own, this will be zero). The money that is saved each month is compounded at the same rate of return as the renter.
Savings Value – If the owner has not used all of their savings towards closing costs and down payment, the remainder is invested at the same rate as the renter.
Value of Assets – This assumes no change in the value of housing. It is the sum of the downpayment + savings value + rental difference + principle retained

Cost of Renting – Monthly rent accumulated over the years to rent (annual increases if given, are included)
Interest Acquired – Amount of money the renter’s savings will have produced at the given rate of return for the number years specified
Mortgage Difference – This is the money saved by renting without any interest applied (meant for comparison purposes only, it is not used in any further calculations)
Savings Reinvested – This is the money saved by renting instead of owning (if it’s more expensive to rent, this will be zero) that is reinvested. The money that is saved each month is compounded at the given rate of return.
Value of Assets – Savings + Interest Aquired + Savings Reinvested

Advantage – The scenario with the largest asset value
Amount – The amount of extra money the advantage provides (ie. renting is better by $20,000).
Implied Housing Return – The amount the value of the house would have to change by in order to make the two scenarios equaivalent. For example if a $500,000 home is better to rent by $100,000 then it implies that the value of the house should rise by 20% in order to make the scenarios the same. If it was better to own by $50,000 then the value of the house would have to fall by 10%. Since no appreciation is assumed in the value of the house, it can seem like rent is favored. This text box gives you an idea of how realistic the expectations would have to be for house appreciation to make up for the difference between renting and owning.

I also added a slider to allow for what-if type scenarios. You can check one of the radio buttons and control the value in the textbox using the slider (calculations are updated automatically).

Since monthly maintenance is added to the owner’s cost, someone could subtract the net rental amount for a suite(after taxes) from their maintenance. That way it would reduce the owner’s monthly cost and if any savings are provided they could then be reinvested monthly. For example if the after taxes suite income is $700 and monthly maintenance is $200, the user could enter this as maintenance being -$500 to reflect the rental suite income.

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