Renting vs buying in Canada
Canadian mortgages are governed by the Office of the Superintendent of Financial Institutions (OSFI), whose stress test requires you to qualify at the greater of your contract rate plus 2% or 5.25%. If your down payment is under 20%, mortgage default insurance (often through CMHC) is required. A quirk worth knowing: Canadian mortgage interest is compounded semi-annually by law, not monthly.
Five-year fixed rates are popular and amortizations of 25 years are typical. On purchase you pay land transfer tax set by your province, and in Toronto a municipal land transfer tax on top, though first-time buyer rebates can offset part of it.
A worked example
On a $500,000 mortgage at 5.2% over 25 years, the monthly payment is roughly $2,969. Under the stress test you'd need to qualify at about 7.2%, which is usually what caps borrowing capacity rather than today's rate.
- Regulator: OSFI, with rates tracking the Bank of Canada.
- Key rule: stress test at contract rate + 2% or 5.25%, whichever is higher.
- Extra costs: CMHC insurance under a 20% down payment, plus land transfer tax.
Canada-specific questions
What is the Canadian mortgage stress test?
OSFI requires borrowers to prove they could afford payments at the higher of their contract rate plus 2% or 5.25%. It reduces the maximum you can borrow so you have a buffer if rates rise.
Why do Canadian mortgages compound semi-annually?
By law, fixed-rate Canadian mortgage interest is compounded twice a year rather than monthly. This results in a slightly lower effective annual rate than monthly compounding at the same nominal rate.
Rent vs. Buy: The True Cost Comparison
Deciding whether to rent or buy is rarely as simple as "rent is throwing money away." Both options carry costs that never build equity, and the right choice depends on your time horizon, local prices, and what you would do with the money you don't tie up in a deposit. This guide lays out the full framework a good rent-vs-buy calculator uses.
The Costs That Don't Build Equity
Renting's obvious non-equity cost is rent itself. But buying has its own "phantom" costs that also build no equity: mortgage interest, property taxes, insurance, maintenance (often estimated at ~1% of the home value per year), and one-off transaction costs on the way in and out. A fair comparison pits rent against the sum of these ownership costs - not against the entire mortgage payment, part of which is forced savings.
The Break-Even Horizon
Because buying front-loads large transaction costs (stamp duty or transfer tax, legal fees, agent fees), it usually takes several years of ownership before buying pulls ahead of renting. This is the break-even point. If you expect to move before it, renting is often the financially stronger choice; stay well beyond it, and ownership typically wins as the mortgage amortizes and (historically) the property appreciates.
Opportunity Cost of the Deposit
A deposit is a large sum of capital. If you rent instead of buying, that capital could be invested. A rigorous comparison therefore models the "rent and invest the difference" scenario: the renter's net worth is their invested deposit plus any monthly savings, compounded at an assumed return, versus the buyer's home equity plus appreciation. The winner is simply whoever has the higher net worth at your planned sale date.
Frequently Asked Questions
Is renting really 'throwing money away'?
Not necessarily. Rent buys you flexibility and frees your capital to invest. Meanwhile a large share of an early mortgage payment goes to interest - money that also builds no equity. The honest comparison is total non-equity cost on each side, plus the opportunity cost of the deposit.
What is the break-even point?
It's the number of years you must own before buying becomes cheaper than renting, after accounting for transaction costs. Sell before it and you likely lose money versus renting; hold past it and ownership tends to win.
How much should I budget for maintenance?
A common rule of thumb is about 1% of the property's value per year, though older homes can cost more. Renters generally avoid these costs, which is a real and often overlooked advantage of renting.
Does home price appreciation guarantee buying wins?
No. Appreciation helps buyers, but it isn't guaranteed and varies widely by location and period. A robust decision holds up even under a modest-appreciation scenario rather than assuming prices always rise quickly.