Marriage, buying a home and having children are seen by many people as the three pillars of a family. But do you really need to buy a home or should you rent first? What are the benefits and risks of one over the other, and how should you prepare a financial plan?
- As the home owner, you can make long-term plans and renovate according to your family's needs, such as dividing a room if you are expecting a child.
- If you buy when young you will likely have repaid the mortgage by the time you retire, giving you financial security. Besides, you can choose to receive annuities through a reverse mortgage in later years.
- The property becomes a family asset that can be passed on to your children or other loved ones.
- Buying a property as an investment allows you to have rental income and make capital gain if the property's value increases.
- The financial stress is lower than buying a flat as only a deposit equivalent to two months' rent plus a month's rent in advance are required.
- Flexible tenancy period. After the lease's fixed term (when neither you nor the landlord can end the tenancy), termination requires just one-month's notice. As a result, you can move, depending on your financial or other circumstances.
- Less expenses and trouble, as landlords are usually responsible for repairs, rates and management fees, and appliances, such as air conditioners.
- Taking out a mortgage requires not only a huge down payment but also monthly repayments of up to 30 years, which is a long-term financial commitment.
- The monthly mortgage repayment amount and the tenor of the loan depend on the market interest rate, as most mortgages are charged at a floating interest rate. A rise of the US interest rate will affect the local interest rates which may in turn affect your mortgage rate. So you have to face the interest rate risk.
- The property prices are affected by the economy. When the property price falls, the mortgage loan may be more than the value of the property. So even selling the property cannot cover the debt, that is the so-called "negative equity".
- You will be responsible for many expenses and extra costs such as maintenance and repairs.
- Rent is generally driven by the market.
- If the property market goes up the landlord may ask for a higher rent, or end the tenancy after the fixed term period. Moving incurs extra expenses.
- Less choice with decoration and renovations, as even a small hole in the wall may require the landlord's permission.
- There is no investment or savings value in renting, which could be seen as repaying someone else's mortgage.
Tips for buying
- When preparing your budget, you should estimate how affordable the mortgage loan is based on your partner's and your own annual income and expenses, and the security of your jobs.
- There are many companies that lend money, including banks. Before applying for a loan, it's important to choose the right mortgage plan from the right company to suit you. If you are a first-time buyer, you may apply for a mortgage loan of up to 90% of the valuation of your property (ie you would need to pay 10% down payment). To know more, please read information about the Mortgage Insurance Programme of The Hong Kong Mortgage Corporation Limited. Also, check the Inland Revenue Department or real estate agency about the stamp duty rates for property purchases.
- When you decide to own your home, you should decide about the location of the property, or even renovations, after taking into account your family's long-term plans, such as having children, hiring a domestic helper and the children’s future education plan.
Tips for renting
- Rent should not be a heavy burden on the family. Try to keep your rent at less than 30% of your household income, as this will affect how you live and the amount you can save. You can prepare your budget using a personal budget calculator to decide on the affordable rent for the right home.
- Pay attention to the terms of the tenancy agreement, especially the tenancy period, and who is to pay the rates, management fees, maintenance and repair costs.
- Before moving in you should make a careful inspection and ensure the landlord has made all necessary repairs, to avoid any disputes later.