Photo by Mark Woodbury, acquired via Flickr.com

# Commuting: Does it Save Money or Not?

Posted March 22nd, 2015 under money matters.

Many people are aware that land and homes are cheaper the further away you get from a downtown core. The idea of enjoying the country lifestyle and saving money at the same time is very tantalizing, especially with home prices rising like there's no tomorrow. But is it really cheaper to commute? That depends on where you move to.

Fundamentally, what you are comparing is the cost of travel versus the cost savings of a lower-priced home.

## The Cost of Car Ownership

An inexpensive car costs $16,000 to buy. Assuming you own the car for 10 years, and drive 20,000km per year for general use, that works out to 8¢/km.

Assuming an efficient engine using only 6L/100km, and with currents fuel costs around $1.00/L, fuel costs add another 6¢/km.

And finally, unavoidable maintenance (oil changes, spark plugs, brakes, etc.) will add about 5¢/km.

In total, a low overall cost for owning a car today is around 19¢/km. (Your real costs are higher if you buy a more expensive or less efficient car, if gas prices go up, or if you\2019 re ever in a collision and need repairs.)

## Translating Commuting Costs to Home Prices

Now let’s consider commuting. If you drive 10km each way, five days a week, that’s a total of about 433km each month. At our cost of 19¢/km, this amounts to $82.27 per month for each 10km of commuting distance.

Meanwhile, at 3% interest, the cost of a mortgage loan is $4.74 per month per thousand dollars borrowed. Half of this is interest ($2.37) and should be seen as a cost.

If each $1,000 borrowed is equal to $2.37/mo, and a 10km commute costs $82.27/mo, then each 10km of commuting distance is equal to $34,713 in purchase price. In other words, to save money, your home needs to be $34,713 cheaper for each 10km further away you move.

## Some Real-Life Examples

*Example 1*: You work in Brampton and move to Orangeville,
a distance of 45km. The price difference for an
equivalent home is about $50,000. You’ve saved
$118.50/mo of mortgage interest.

However, your travel costs will be $370.20, which means you’ll actually be spending an extra $251.70/month, plus 2 hours of your time each day driving.

*Example 2*: You work in the west end of Toronto and move
to Hamilton, a distance of 65km. The price difference for
an equivalent home is about $340,000+. You’ve saved
$805.80/mo of mortgage interest. Travel will cost
$534.75 per month, so you’ll save $271.05 per month,
but at the cost of 3+ hours of travel each day.

*Example 3*: You work in Mississauga and move to Brampton,
a distance of 25km. The price difference for an
equivalent home is $180,000+. You save $426.60/mo of
mortgage interest. Travel will cost $205.67 per month, so
you’ll save $220.93 per month, but at the cost of 2 hours
of travel daily.

## Conclusion

Commuting can be a financial positive or negative. If you’re considering moving to save money, do these same calculations for your situation so you’re aware of the money and time being traded. This will allow you to make a sound judgment.

Want to know more about house prices in certain locations? Just ask me, I'll be happy to help.