Money

Renting vs buying: the math calculators leave out

By Leandro Bruzaferro · · 5 min read
A row of houses on a residential street
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This is informational and not financial advice.

The comparison almost everyone runs is monthly rent against a monthly mortgage payment. When the payment is close to the rent, buying looks obviously better, because at the end of it you own something. That comparison omits three categories of cost large enough to reverse the conclusion, and the omissions are systematic rather than random.

What the standard comparison measures

A typical calculator asks for the purchase price, the deposit, the mortgage rate and the current rent, then compares the resulting payment against the rent.

That produces the principal and interest figure and stops. It is an accurate answer to a question nobody should be asking, because principal and interest is not what owning a home costs.

Take a concrete case. A $400,000 property, twenty per cent down, leaving a $320,000 loan. At the average thirty-year fixed rate of 6.66% recorded in the survey for the week of 30 July 2026, the monthly principal and interest works out to roughly $2,056.

Set that against rent of $2,200 and buying appears to win before the discussion starts. Now add what was left out.

The costs left out

Monthly Included by most calculators?
Principal and interest $2,056 Yes
Property tax and insurance ~$600 Sometimes
Maintenance and repairs ~$333 Rarely
Subtotal, cash out the door ~$2,989
Opportunity cost of the $80,000 deposit ~$467 Almost never
Total economic cost ~$3,456

The figures beyond the mortgage payment are illustrative, and each deserves a note.

Maintenance is the cost most often assumed away. A common planning rule is around one per cent of the property value annually, here $4,000 a year, and it is lumpy rather than smooth: nothing for three years, then a roof. Renters do not pay this, which is the single largest structural difference between the two positions.

Opportunity cost is the return the deposit would have earned elsewhere. Eighty thousand dollars invested at a assumed seven per cent would produce about $5,600 a year. That is a real cost of tying the money up in a house, and it is invisible because no money leaves your account.

Against rent of $2,200, the honest monthly comparison is not $2,056 against $2,200. It is roughly $3,456 against $2,200.

What buying returns that renting does not

The comparison is not finished, because part of the ownership payment is not a cost at all.

In the early years of a thirty-year loan at this rate, a substantial majority of each payment is interest and only a minority reduces the balance. The portion reducing the balance is a transfer from one pocket to another, not an expense. It should be subtracted from the cost side, and it grows every year as amortisation shifts.

Property appreciation, if it occurs, accrues to the owner and is leveraged by the mortgage, which is the strongest argument for buying and also the least predictable element in the calculation. Rent inflation over the same period accrues against the renter, whose payment rises while a fixed mortgage payment does not.

Both effects are real. Neither is guaranteed, and calculators that assume a confident appreciation rate are making a forecast dressed as arithmetic.

Transaction costs and the break-even horizon

This is what actually determines the answer, and it is the part the monthly framing obscures completely.

Buying carries closing costs of roughly two to five per cent of the price. Selling carries agent commission and associated fees, commonly around six per cent or more. Round-trip transaction costs therefore sit somewhere near eight to ten per cent of the property value, which on a $400,000 home is $32,000 to $40,000.

That sum has to be recovered before ownership breaks even against renting, out of the difference between the two positions plus whatever equity and appreciation accumulate.

The consequence is that the length of stay dominates everything. Buy and sell within two or three years and transaction costs alone will usually make renting the better financial outcome, regardless of how favourable the monthly comparison looked. Stay ten years or more and the amortisation shifts, rent inflation compounds against the renter, and ownership usually wins.

Somewhere between those lies a break-even that depends on your local rent-to-price ratio, your rate and your tax position. The useful discipline is to estimate it before buying rather than assuming it is short.

When renting is the better financial move

Renting is frequently treated as the default failure state, which is not what the arithmetic supports.

Renting is likely the better financial decision when you may move within a few years, when the local rent-to-price ratio is low so that buying costs far more monthly than renting, when the deposit could be invested elsewhere at a return you would otherwise forgo, or when you need the flexibility to relocate for work without a sale standing between you and the decision.

Buying is likely better when you will stay long enough to clear transaction costs comfortably, when you value stability of payment and of tenure, and when you can absorb maintenance without borrowing for it.

The point of running the full comparison is not to reach a general verdict. It is that the popular version of the calculation systematically understates the cost of buying by leaving out maintenance, opportunity cost and transaction costs, and a decision this large deserves the version with all three put back in.

Khan Academy runs the rent-versus-buy comparison with a different set of assumptions. (Renting versus buying a home, Khan Academy)

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