Amid increasingly high mortgage and interest rates, Canadians struggling to get into the housing market are looking into rent-to-own as an alternative route to homeownership.

However, like any investment, experts say rent-to-own comes with its own risks and rewards.

Rent-to-own is intended for entry level, first time home buyers who are struggling to obtain homeownership, whether that includes not being approved by their bank or they are struggling to save for a down payment.

Rachel Oliver, managing partner at Clover properties, says the way rent-to-own works is that renters will need to pay a lump-sum down payment on a home that will then get calculated into a monthly rent. The rent, along with a forced savings payment, will make up the total monthly payments that will work toward a down payment for the home.

“With every monthly payment, essentially the homebuyer is building up equity, and building up a down payment for the purchase of a home,” Oliver told CTV’s Your Morning on Thursday.

Oliver says the process to save for a down payment takes between 38 to 46 months and is also intended to help renters fix any credit issues. Additionally, renters will also be responsible for any maintenance fees or upgrades needed for the home.

Much like homeownership, there are still risks involved with rent-to-own, Oliver says. Renters need to make their monthly payments on time and stay in their rent-to-own home for the agreed upon duration or they may have to forfeit their down payment credits. She said it is important for renters to be committed to staying in the home if they eventually want to own it and build up equity.

“This is really for people that are willing to stay somewhere for at least five to eight, 10 years,” she said. “When you own a property for about five to 10 years, you build up equity and that equity creates some financial security and ultimately a nest egg for the future.”

Last month, Trudeau announced the government’s $2 billion dollar plan to fund housing projects that will create 17,000 new homes, housing for the homeless and a $200 million rent-to-own housing program.

Under the Canada Mortgage and Housing Corp (CMHC), the new rent-to-own program is for municipalities, private developers, housing providers and Indigenous organizations who are interested in creating projects to aid tenants become homeowners within five years.

Oliver says the government’s plan seems geared toward subsiding developers where they are given a certain amount of units to give to renters in a “auction style” market, however, it’s too early to tell what the impact will have on Canadians and how it can aid the housing market.  


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