Rent vs. Buy

The most common shortcut compares a month’s rent with a month’s mortgage payment. It misleads in both directions. Part of each mortgage payment is principal, which is not a cost at all: it moves money from your bank account into home equity, a form of saving. Meanwhile the payment leaves out costs only owners carry, such as property tax, homeowners insurance, repairs and, for many buyers, PMI.

A fairer test compares unrecoverable costs, the money each path spends that you never get back. For a renter that is rent plus renters insurance. For an owner it is mortgage interest, property tax, insurance, maintenance and the return the down payment could have earned if it had stayed invested, minus whatever the home gains in value. Principal repayment and the down payment itself stay on the owner’s balance sheet, just as the renter’s invested savings stay on theirs.

Owning has more moving parts than renting, and small changes in the assumptions can flip the answer. The two that matter most are the cost of capital, meaning the mortgage rate on borrowed money plus the return your own money could earn elsewhere, and the rate at which you expect the home’s price to grow. Test a pessimistic and an optimistic case for each rather than trusting one estimate, and use real quotes for tax and insurance. The pieces:

The yearly comparison ignores the cost of getting in and out. Buying brings closing costs such as the appraisal, title insurance, lender fees and government taxes. Selling brings agent commissions, transfer taxes in many places and repairs to ready the home, plus moving at both ends. Transfer taxes on a personal home aren’t deductible: a buyer adds them to the home’s cost basis, and a seller subtracts them from the sale proceeds.

These one-time costs have to be earned back by owning’s yearly advantage, so the answer depends on how long you stay. Divide the round-trip transaction costs by how much less owning costs each year than renting to get a rough break-even horizon. In the worked example, at least $45,000 of buying and selling costs against a $6,732 yearly advantage takes close to seven years to recover. Sell after three and renting would likely have been cheaper, even though owning cost less every year.

The size of the down payment moves costs around rather than removing them: less down means less opportunity cost but more interest and, usually, PMI.

Tax breaks for owners are smaller than they look for most households. Mortgage interest on up to $750,000 of acquisition debt and property tax are deductible only if you itemize, and property tax shares the 2026 SALT cap of $40,400 with state income or sales tax. The benefit is only the amount by which your itemized deductions exceed the standard deduction, $32,200 for a married couple filing jointly and $16,100 for a single filer in 2026, times your marginal rate. In the worked example, $25,868 of interest plus $6,000 of property tax comes to $31,868, below the couple’s standard deduction, so the mortgage saves them nothing unless state income tax or other deductions push them over.

The larger tax advantage often arrives at the end. The home sale exclusion shields up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned and lived in the home for two of the five years before the sale. A renter who invests the difference in a taxable brokerage account pays tax on dividends and capital gains along the way unless the money goes into tax-advantaged accounts. Neither side can deduct rent or repairs on a personal home.

Some of the biggest differences don’t fit in a yearly cost figure. Owning concentrates wealth in one leveraged asset: with 20% down, a 10% fall in the home’s price wipes out half your equity, and selling costs can take much of the rest. Equity is also illiquid, reachable only by selling or borrowing against the home. On the other hand, a fixed-rate mortgage locks in the largest part of your housing cost while rent can rise every year, and a paid-off home lowers the income you need in retirement.

Behavior matters as much as arithmetic. Renting wins on paper only if the renter actually invests the down payment and the monthly savings; for many households the mortgage works as a forced savings plan that builds net worth without effort. Some buyers split the difference by house hacking, renting out part of the home to offset its cost. The table sums up what tends to tilt the decision.