Rent vs Buy: Which Makes Sense at Today's Rates?

Why the old rule broke

For a decade, mortgage rates sat at 3–4%. At 3.5%, a $300,000 loan cost $1,347/month — often less than renting a comparable place. Buying was almost always cheaper, and the equity buildup was a bonus.

At 7%, that same $300,000 loan costs $1,996/month. Add property tax (~1.1% nationally = $3,742/year), insurance ($1,500/year), and maintenance (1–2% of value = $3,400–6,800/year), and the total cost of owning a $340,200 home is roughly $2,700–3,100/month. A 1-bedroom rental at $1,300/month is dramatically cheaper — and you're not paying for the roof that needs replacing.

The old rule assumed low rates and rising prices forever. Today's reality is higher rates and uncertain appreciation. The math has to be specific to your city, your home price, and your time horizon.

The five-year rule

Buying only makes financial sense if you'll stay long enough to recover the upfront costs. The rule of thumb is 5–7 years, because closing costs (2–5% of the home price), realtor fees on sale (5–6%), and the slow equity buildup in the first decade mean shorter stays usually lose money.

On a $340,200 home with 20% down ($68,040), closing costs might be $6,800–10,250. When you sell, realtor fees on $340,200 are about $20,412 (6%). That's $27,000+ in transaction costs. To break even, your home needs to appreciate by that much — or you need to stay long enough that the equity buildup + appreciation exceeds what you'd have saved by renting.

If you might move in 3 years, renting is almost always better. If you're confident you'll stay 10+ years, buying starts to make sense even at 7% rates — because you're paying principal, not just interest, and inflation erodes the real value of your fixed payment.

The hidden costs of owning

Most rent-vs-buy comparisons only compare the monthly payment. That misses significant costs that homeowners pay and renters don't:

• Property tax — averaging 1.1% of home value nationally, from 0.28% in Hawaii to 2.13% in New Jersey. On a $340,200 home, that's $3,742/year ($312/month).
• Maintenance — 1–2% of home value per year. Roof, HVAC, plumbing, appliances. On a $340,200 home: $3,400–6,800/year ($283–567/month).
• Insurance — homeowners insurance averages $1,500–3,000/year, more in high-risk areas (hurricane, wildfire zones).
• HOA — if applicable, $200–500/month in many developments. Condos in cities often carry $400–800/month.
• Opportunity cost — your down payment ($68,040 on a $340,200 home) could be invested. At 7% average stock market return, that's $4,763/year in foregone investment growth.

What renters save

Renters pay rent and renter's insurance ($15–30/month). That's it. No property tax, no maintenance, no HOA, no transaction costs. The down payment stays invested.

On a $340,200 home, the buyer puts down $68,040 and pays ~$2,900/month all-in (mortgage + tax + insurance + maintenance). The renter pays $1,300/month for a 1-bedroom and invests the $68,040 down payment plus the $1,600/month difference.

Over 5 years, the renter has invested $68,040 + (12 × $1,600 × 5) = $164,040. At 7% average return, that's roughly $197,000. The buyer has paid $174,000 in housing costs and has equity — but also $27,000 in transaction costs if they sell. The buyer needs significant appreciation just to match the renter's position.

This isn't an argument for never buying — it's an argument for buying with eyes open. Use the mortgage calculator to see your actual payment, then add 30–40% for the full cost of ownership.

When buying does make sense

Buying makes sense when: you'll stay 7+ years, mortgage rates are reasonable relative to rent, you want the stability and customization of ownership, and you're in a market with reasonable price-to-rent ratios.

A quick check: divide the home price by annual rent for a comparable place. If the ratio is under 15, buying tends to favor. Over 20, renting is usually better. Between 15–20, it depends on rates and how long you'll stay.

On a $340,200 home where comparable rent is $1,800/month ($21,600/year): the ratio is 340,200/21,600 = 15.7. At 7% rates, that's borderline — you need a longer horizon to make it work. At 4% rates, it clearly favors buying.

The affordability calculator can help you see what you'd actually pay monthly as a homeowner in your city, with real local rent and utilities pre-filled.