JagInsights › Glossary › Rent versus buy
What does rent versus buy compare?
Rent versus buy compares the monthly cost of renting with the monthly cost of owning the same shelter, including the costs that are not the mortgage.
A rent-versus-buy comparison puts the monthly rent next to the monthly cost of owning: mortgage principal and interest, property tax, insurance, and maintenance. The mortgage payment alone is not the cost of owning.
Worked example
Rent is $1,600. A $300,000 home with 10 percent down at 6.5 percent for 30 years has a principal-and-interest payment near $1,700 before tax, insurance, and repairs. Add those and owning can be well above the rent, even though you are building equity. Equity is real. It is not cash you can use for groceries.
Why it matters
The comparison people do in their head uses the mortgage and ignores tax and repairs, then treats equity as if it were a discount on the rent.
Questions people ask
Is buying always better after a few years?
No. It depends on the price, the rate, how long you stay, and what rent costs for a place you would actually live in.
Does a bigger down payment change the monthly cost?
Yes. More down means a smaller loan and a smaller principal-and-interest payment. It also means cash that is no longer in your emergency fund.
What about a zero-down loan?
The loan is the full price, so the payment is higher. Type 0 in the down-payment field. Do not let a blank field turn into 10 percent.
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