Rent or buy?

How to read it

When buying, the principal stays yours (it becomes the home): the real «cost» of a mortgage is the interest. Here we compare it with what you'd pay in rent over the same period.

Note

It's a simplified comparison: it ignores purchase costs, taxes, maintenance or property appreciation. Useful as a first orientation.

The right comparison is not instalment against rent

Putting the mortgage instalment next to the rent is the comparison everybody makes and it is the wrong one, because the instalment contains two different things. The capital share is not an expense: it is forced saving that turns into a house. The interest share instead goes out and never comes back, exactly like rent.

The honest comparison is therefore between the rent and the sum of what buying genuinely loses: interest, property taxes, insurance, major maintenance and the building charges a tenant does not pay. It is a total lower than the instalment, but much higher than interest alone.

The two items that decide it, and that nobody counts

The first are the entry costs: taxes, notary or solicitor, agency, arrangement fees. This is money that vanishes on the day of the deed and has to be earned back over the years, which is why there is a time threshold below which buying almost always loses. Anyone reselling after three or four years, barring a rise in prices, comes out behind.

The second is the opportunity cost of the deposit: the twenty, fifty, eighty thousand paid up front could have earned something elsewhere. A comparison that treats it as free makes buying win by construction.

What weighs and is not a number

Buying wins stability: nobody can make you leave, the cost of housing stops rising with the market, and once the mortgage ends the cost of a home nearly disappears, which is why retired owners live on far less. But it loses mobility: changing city with a house to sell costs months and thousands, and a better job three hundred kilometres away becomes a complicated decision.

Renting wins the opposite, and it also wins the fact that the broken boiler and the roof to redo are somebody else's problem. Anyone who does not know where they will be in five years is buying a constraint, not only a house.

How to read a result that says «even»

When the two totals look alike, the calculation is not saying it makes no difference: it is saying the decision has to be made on other grounds. There what weighs is work, family, the appetite for putting your hands into the walls, and the fact that a mortgage is a twenty-year commitment made today with today's information.

It is also worth moving two numbers: the rate, because half a point either way changes the proportions; and the years you expect to stay, because that is the variable that flips the result more than any other.

Nearby tools

For the affordable amount there is How much mortgage can I afford, for the make-up of instalments Amortisation schedule and for the effect of extra payments Early repayment. The alternative of investing the deposit is weighed with Compound interest.