Money, Explained From the Inside

Tools / Borrow / Chapter 13 · Mortgages and the Rent-or-Buy Question

Rent or buy?

Neither is always better. Buying wins when you stay long and prices hold; renting wins when you move early or the price is high compared with rent. Test your own assumptions.

1 · The idea

Compare net wealth at the horizon

If you buy, your wealth is the home’s value after selling costs, minus the mortgage still owed. If you rent, you invest the deposit and purchase costs, and each month you also invest whatever buying would have cost you above your rent (or draw it down if renting costs more).

The formula

Buy: value × (1 − selling costs) − mortgage balance vs Rent: deposit and extra cash invested

Deposit + costs
cash a buyer ties up on day one
Running costs
tax, insurance, maintenance as % of value
Investment return
what the renter’s money earns

2 · A worked example

At these assumptions, after 3 years the buyer is $13,401 behind; after 25 years $327,808 ahead. Time in the home changes the answer.

3 · Now use your own numbers

Change anything. The result updates instantly.

Try an example
Buying
Renting
Buyer’s wealth after 10 years
$202,642
Renter’s wealth
$144,055
Buying ahead by
$58,587
Break-even year
Year 4First year buying overtakes renting
Mortgage payment
$1,473.81
Cash tied up on day one
$69,000
0125k250k375k500k0246810
Years on the horizontal axis.
  • Buy: home equity after selling costs
  • Rent: invested cash

What this means

Buying has high entry and exit costs, so it takes years to pay back. The break-even year is the most useful number: if you might move before then, renting deserves a serious look.

Change the growth and return assumptions by a point or two and watch the answer move: that fragility is the real lesson.

Illustrative, not personal advice. Inspired by Chapter 13 · Mortgages and the Rent-or-Buy Question of Money, Explained From the Inside. Your figures stay in this browser. Real products add terms, taxes and conditions that this simple model leaves out.

4 · Take care

What this tool can’t see

  • The result depends heavily on price growth and the investment return, which nobody can know. Try pessimistic and optimistic cases.
  • This ignores taxes and mortgage-interest relief, which differ widely by country, and non-financial value such as stability.

5 · Go further

Where this fits

See it in a life:

Anir & KatiaThe biggest decision of their lives

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