How the comparison works
Buying includes: down payment + monthly mortgage (interest + principal) + maintenance + property tax, minus the equity you built and the appreciation of the home at the end of the horizon. Renting includes: monthly rent growing each year. Both totals are computed over the same horizon for a fair comparison. The mortgage payment uses a standard 30-year amortization; the horizon only sets the analysis window, not the loan term.
Worked example
A $350,000 home, $70,000 down, 6% mortgage, 1% maintenance, 1% property tax, 3% appreciation. Alternative rent of $1,500/month growing 3% annually. Over 10 years, the net cost of buying is roughly $150,000 versus about $206,000 for renting. At 3 years, however, renting usually wins because of the heavy upfront transaction costs of buying.
Common mistakes
- Comparing payment vs rent only. The mortgage payment excludes maintenance, HOA, taxes, insurance and the opportunity cost of the down payment.
- Assuming guaranteed appreciation. Home prices can fall over 5–10-year windows. Try scenarios at 0% or −1%.
- Ignoring opportunity cost of the down payment. $70,000 invested at 5% net becomes $114,000 in 10 years.
- Forgetting closing costs. Buying costs 2–5% in fees; selling adds another 5–6% in commissions.
- Assuming you can always sell. Homes are illiquid; in downturns they can take a year or more to move.
Frequently asked questions
How long until buying pays off? In most markets, 5–7 years. Below that, upfront costs rarely amortize.
What if I might relocate for work? Renting is usually the financially correct choice. Buying assumes a 5-year minimum commitment.
Does appreciation cover mortgage interest? With 3% appreciation and 6% rates, no. Only when appreciation exceeds the mortgage rate does buying win without further analysis.
Should I buy if renting is cheaper? Sometimes — if you value stability, control, and the forced-savings aspect of a mortgage.
Should I put more down? More down reduces interest but also the capital you could invest. Simulate both.