Toronto, Vaughan and the GTA are currently enjoying a healthy rental market with vacancy rates hovering around 1%. This high demand for rental properties has driven up rental rates upwards of 20%.
Many tenants are renting while saving enough of a down payment to put towards a house of their own in the future in hopes of someday paying “rent” to themselves, so to speak. But for those tenants that are renting and currently do have a deposit to put down, let’s really understand your situation.
First, let’s understand the basics. The minimum down payment in Canada is 5%, with the typical down payment ranging from 5%-20% of the home price. According to a recent TD Canada Trust Home Buyers Report, 30% of home buyers plan to have or already have at least a 20% down payment.
Think about this, if you have the minimum 5% towards a $400,000 home you would require a $20,000 down payment. Over the next 5 years, you would have paid about $40,000 dollars of principal down of your mortgage loan now your $20,000 dollar investment has become about $60,000 dollars. We haven’t even factored in rising property values. Price appreciation in Toronto, Vaughan and throughout most of the GTA is historically averaging above 5% every year. Let’s take a conservative estimate and assume prices only appreciate by 2% every year. Over the past 5 years your property value has gone up from $400,000 to $440,000 and you’ve paid down about $40,000 in principle. That’s $80,000 of equity that you just built up through your minimum 5% down payment!
If you were still renting over those same 5 years at an average of $2000/month (which is typical for a $400,000 property in Toronto) you would have paid a whopping $120,000 towards someone else’s mortgage! Insane isn’t it!
It’s really eye-opening to think of this typical Toronto tenant’s situation but when you really start to understand how you’re spending your hard earned money each month, you can take the necessary action to ensure you’re moving in the right direction.
If you have any questions about the home-buying process or any other real estate related questions, please don’t hesitate to contact me.
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Ilan Joseph is a Real Estate Broker with Sutton Group and is co-founder of a 10-person award-winning Toronto real estate team. You can find him on Twitter, YouTube and Google+. For over 10 years, Ilan has provided more than 1400 buyers and sellers valued advice and service, enabling them to reach their real estate goals. He’s kind of like the Bruce Willis of real estate.