Money Basics

Rent or Buy? How to Run the Real Numbers Before You Decide

By Lena Ortiz / November 8, 2026

Quick answer: Rent versus buy comes down to which option costs more money you never get back. For renters, that is rent. For owners, it is mortgage interest, property tax, insurance, repairs and the return your down payment could have earned. With Freddie Mac’s 30-year fixed rate at 7.18% on November 5, 2026, owning cost more per month in our example and only pulled ahead after a multi-year stay: from 4 years to more than 30, depending on rent and price growth.

Key takeaways

Headline rules like “price-to-rent under 15” and “the 5% rule” are quick filters, not verdicts.
Compare unrecoverable costs, not rent versus the mortgage payment. Principal is savings you can get back, minus selling costs.
Closing and selling costs mean how long you stay matters as much as the monthly number.
Rent growth, price growth and investment returns are guesses, so test a range.
Flexibility and stress count too, and no spreadsheet captures them.

What you are really comparing

“Rent is throwing money away” and “a mortgage is forced savings” are both catchy and both incomplete. Principal becomes equity. Interest, taxes, insurance, repairs and the return your cash could have earned do not come back.

The Census Bureau’s 2024 American Community Survey put median gross rent (rent plus utilities) at $1,487 a month and median owner costs for homeowners with a mortgage at $2,035. They are not like-for-like: different homes, bought in different years at different rates.

Picture two coworkers with identical salaries and house prices. One is relocated after three years; the other stays twelve. Same math, different outcomes. Time is an input, not a footnote.

The mortgage rate today

Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed-rate average at 7.18% as of November 5, 2026, down from 7.24% a week earlier (15-year: 6.57%). It covers conventional purchase loans with 20% down and good credit, and it does not report fees or points. Your quote can differ.

Closing costs

The Consumer Financial Protection Bureau (CFPB) reported median total loan costs on home purchases of about $6,700 in 2023, the latest figure we found. Your lender must deliver the Closing Disclosure at least three business days before closing. We assume 3% of the price.

When you sell, agent compensation is negotiable under National Association of Realtors (NAR) practices, so we assume 6% of the sale price. Both are assumptions, not statistics.

Property tax, insurance and maintenance

Property tax varies enormously: the Tax Foundation’s 2024 county data show effective rates from about 0.13% in some Louisiana parishes to above 2.6% in Lake County, Illinois.

Insurance has climbed: the National Association of Insurance Commissioners (NAIC) found inflation-adjusted average premiums per policy rose 18.3% to 43.3% across its regions from 2018 to 2024. Get real quotes early.

Maintenance is lumpy. The 5% rule below assumes about 1% of value a year, but roofs do not arrive in tidy installments.

The opportunity cost of your down payment

Cash in a down payment cannot earn elsewhere. For scale, the 10-year Treasury yielded 4.84% on November 5, 2026, per the Federal Reserve’s H.15 release. We use 4.5%. Swap in your own alternative.

How long you need to stay

Buying front-loads costs and selling adds more, so breaking even takes time. NAR’s 2026 Profile found sellers had owned their homes a median of 12 years. That describes others, not you, so test several timelines.

Two shortcuts: the price-to-rent ratio and the 5% rule

Price-to-rent ratio

Divide the home price by a year of rent. The Motley Fool describes a common reading: below 15 favors buying, 16 to 20 leans toward renting, above 21 favors renting strongly. A $420,000 home renting for $2,500 a month gives 14.0. The ratio ignores mortgage rates, taxes, repairs and your timeline, so use comparable local homes, not city averages.

The 5% rule

Benjamin Felix of PWL Capital, writing in The Globe and Mail, argued that owning’s unrecoverable costs run about 5% of home value a year: roughly 1% property tax, 1% maintenance and 3% cost of capital (the gap between an assumed 6% stock return and a 3% real estate return). Multiply the price by 5% and divide by 12 for the monthly rent that roughly equals owning: $1,750 for $420,000.

The limits: it was written for Canada in 2019 (updated 2021), omits higher insurance, assumes the renter invests the difference, and weakens once mortgage rates exceed the assumed real estate return. At 7.18%, that warning is live. Both shortcuts say “buy” for our example; the fuller picture is less tidy.

A worked example with every assumption shown

This is deliberately plain, not a forecast or recommendation.

Price $420,000, near NAR’s $417,500 national median existing-home price for September 2026.
20% down ($84,000); 30-year fixed loan of $336,000 at 7.18%.
Closing costs 3% ($12,600); selling costs 6%.
Property tax 1% of price, insurance $1,800 a year, maintenance 1% of value a year.
Rent $2,500 a month; rent, tax and insurance grow 3% a year, near the 3.2% 12-month rise in the Bureau of Labor Statistics (BLS) shelter index through September 2026.
The renter invests the down payment, closing costs and each month’s cost gap at 4.5%.
No itemizing tax benefit (see the FAQ).

Table 1: Year-one monthly cost

Item	Own	Rent
Mortgage payment (principal and interest)	$2,276	–
Property tax	$350	–
Homeowners insurance	$150	–
Maintenance	$350	–
Rent	–	$2,500
Cash out the door	$3,126	$2,500
Less principal paid (becomes equity)	-$275	–
Plus opportunity cost on $96,600 cash	$362	–
Unrecoverable cost	$3,213	$2,500

In year one, owning’s unrecoverable cost is about $713 a month higher. Price growth can close that gap: each 1% change in a $420,000 home’s value is $4,200 a year, about $350 a month.

A simplified month-by-month model gives break-even: the first year the owner’s net worth (home value minus 6% selling costs minus the loan balance) catches the renter’s invested savings.

Table 2: Break-even year by starting rent and yearly price growth

Starting rent	0% growth	2%	3%	4%
$2,200	Not within 30 years	Year 24	Year 14	Year 8
$2,500	Year 24	Year 13	Year 8	Year 5
$2,800	Year 16	Year 7	Year 5	Year 4

Read it as a map, not a prediction. At 3% growth and $2,500 rent, owning caught up in year 8; with flat prices, year 24. Any rate change shifts every cell, so rerun it with your own quote.

Run it yourself: a seven-step spreadsheet method

List inputs: price, down payment, rate, term, closing costs, tax, insurance, maintenance, rent, growth rates, savings return, selling costs and years you might stay.
Compute the monthly payment with the PMT function: rate divided by 12, number of months, loan as a negative number.
Build a yearly loan schedule: interest, principal, remaining balance.
Add the owner’s yearly cash costs: payment, tax, insurance and maintenance, each growing at its own rate.
Add the renter’s side: yearly rent, plus an investment account that starts with your down payment and closing costs and receives each year’s cost gap.
Each year, compute owner net worth (value less selling costs less loan balance) and renter net worth (the account balance).
Find the crossover year, then repeat with pessimistic and optimistic inputs. If the answer swings wildly, pressure-test your assumptions.

Beyond the math: non-money factors, a checklist and common mistakes

Non-money factors

Flexibility: how likely a job, family or city change is soon.
Control: painting walls and adding a dog door versus asking a landlord.
Stability: a fixed payment versus rent that can reset at renewal.
Time and stress: repairs, yard work and calling the plumber at 9 p.m.
Concentration: a home can be a large share of your net worth, and you cannot sell one bedroom.

Checklist

Check the latest Freddie Mac rate, then get real lender quotes.
Request a Loan Estimate and the full list of closing costs.
Look up your county’s property tax rate and get an insurance quote.
Set a maintenance reserve separate from your down payment.
Write down your down payment’s alternative use and return.
Find rents for truly comparable homes.
Model a short, medium and long stay.
Check whether itemizing would beat the standard deduction.
Keep an emergency fund intact after closing.

Common mistakes

Comparing a mortgage payment to rent and stopping there.
Skipping selling costs, which make short stays expensive.
Assuming prices only rise, or that rent never changes.
Counting a tax deduction you will not actually get.
Draining savings for the down payment and having nothing left for the water heater.

Frequently asked questions

Is renting really throwing money away?

Not exactly. Owners pay for housing too, through interest, taxes, insurance and repairs. The difference is principal, which builds equity. Whether that outweighs the rest depends on your numbers and timeline.

How long do I need to stay to break even?

It depends. In our example it ranged from 4 years to more than 30. Closing plus selling costs make very short stays hard to justify on cost alone. Run your own inputs.

Does owning give me a tax break?

Only if you itemize. The Internal Revenue Service (IRS) lists qualified mortgage interest as an itemized deduction, with a $750,000 debt limit for homes acquired after December 15, 2017. The 2026 standard deduction is $16,100 for single filers and $32,200 for joint filers, so your itemized total must beat that first. A tax professional can check your case.

What if I put down less than 20%?

You will often pay private mortgage insurance (PMI), which our example leaves out. The CFPB says you can ask to cancel PMI when your balance is scheduled to reach 80% of the home’s original value, and servicers must generally end it at 78% if you are current. Ask lenders for the PMI cost.

Before you decide

Treat rules of thumb as a flashlight, not a map. Get real quotes, run a range of scenarios, and note which one assumption would change your answer most. For a specific purchase, a licensed mortgage professional or fee-only financial adviser can check your figures.