How Your Monthly Payments

Are Calculated

Example:

The home you want to purchase is currently being sold for $300,000

To determine the final purchase price, during each year of the Rent To Own (RTO) agreement we appreciate the house by 3 - 4.5%.

Let’s use 3.5% over a 3-year RTO. Therefore your final purchase price would be $332,615.

At Rent To Own Canada we structure our agreements to get you, the tenant-buyer, to have 10% of the final purchase price saved at the end of the RTO. This is used as your down payment to purchase the home and puts you in the best position to qualify for a mortgage.

At the start of the RTO you need to have a minimum initial deposit of 5%. Most of our clients aim for slightly higher than 5% as it keeps monthly costs lower. In the example below we will use the minimum initial deposit of 5%.

Here is a summary of the numbers So far:

Final Purchase Price: $332,615

10% Down Payment: $33,261.50 (this is the total amount you would have at the end of the RTO)

5% Initial Deposit: $16,630.75 (this is the deposit you would need at the start of the RTO)

To determine your monthly option payments we simply use the difference between the down payment and your initial deposit and divide it by the number of months in the RTO. (see calculation below)

$33,261.50 - $16,630.75 = $16,630.75 / 36 months = $461.96

Monthly Option Payment: $461.96

how to Lower your monthly Payments:

People who keep their monthly payments lower have an easier time carrying the costs of the RTO.

Therefore having a larger deposit at the start of the RTO will drastically reduce your monthly expense.

An 8% deposit ($26,609.23), would have an option payment of $184.78/month. That is $277.18 less than the example above.

You can also lower your monthly payment by having a longer rent-to-own term. For example a 4 year term is significantly less expensive than a 2-year term. The reason for this is simply because you have more months to save to get to the 10% savings, therefore the option payment will be lower.

Total Monthly Costs: Monthly Rent + Option Payment

To calculate the total monthly carrying costs we use market rent in the area, plus the option payment.

At the successful completion of the Rent To Own, you will have a mortgage with a bank, credit union, or lending institution. At this point, your monthly mortgage cost will be lower than your Total Monthly Costs during the RTO.

Now that you are a homeowner there will be more money in your pocket at the end of the day.