Should I Buy or Rent? A mathematical guide to help you keep up with the Joneses
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1 July 2011
ROI sensitivity to housing growth
Baseline scenario
Baseline conditions:
- $250,000 purchase
- 10% down payment
- 25 year amortization
- 10% investment target
- $900/month rental cost
This graph shows the sensitivity of the mortgage ROI as function of housing growth and interest rates.
We can see with our baseline scenario that buying in a tepid housing market doesn’t make a lot of financial sense.
In an average housing market, like Toronto, there is an inflection point at 6%. You are better off renting at interest rates above 6%, while there is a financial incentive to buy at interest rates below 6%.
Our high growth housing market offers not financial incentive to rent, even at high interest.
$600 monthly rent scenario
This graph shows the sensitivity with $600 rent.
Page 1 ROI sensitivity to monthly rent
Page 2 ROI sensitivity to housing growth
