Mortgage vs Rent: Calculator Guide

"Is it cheaper to buy or rent?" The answer depends on where you live, how long you plan to stay, interest rates, and dozens of other factors. Here is how to calculate it for your situation.

The Price-to-Rent Ratio

Example: A $400,000 home where equivalent rent is $2,000/month: $400,000 ÷ $24,000 = 16.7 — borderline, dig deeper.

True Cost of Buying

The mortgage payment is only part of the cost. Include:

• ▶ Deposit/down payment: Typically 10-20% of purchase price
• ▶ Mortgage interest: Often more than the principal in early years
• ▶ Property taxes: 0.5-2.5% of home value annually
• ▶ Insurance: Homeowner's insurance, possibly mortgage insurance
• ▶ Maintenance: Budget 1-2% of home value per year
• ▶ Transaction costs: Legal fees, stamp duty, agent fees (2-6% to sell)

True Cost of Renting

• ▶ Monthly rent: The obvious cost
• ▶ Annual increases: Typically 2-5% per year
• ▶ Renter's insurance: Usually much cheaper than homeowner's
• ▶ No maintenance costs: Landlord's responsibility
• ▶ Opportunity cost: The deposit money could be invested elsewhere

The Break-Even Timeline

Buying typically breaks even after 5-7 years in most markets. If you plan to move sooner, renting usually wins because:

• ▶ Transaction costs of buying and selling are 5-8% of the home price
• ▶ Early mortgage payments are mostly interest, not equity
• ▶ Short-term property price changes are unpredictable

The Investment Angle

If you rent and invest the difference (what you would have spent on deposit + extra ownership costs), stock market returns historically average 7-10% annually. Compare this to typical property appreciation of 3-5% annually — though property uses leverage (your mortgage), which amplifies gains.