Running the numbers
Comparing the True Monthly Cost of Renting and Owning
A mortgage payment and a rent check are not the same kind of number. Here is how to compare them fairly, line by line.
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Key takeaways
- Principal and interest are only part of what a homeowner pays each month.
- Property taxes, homeowners insurance, mortgage insurance and association dues are often bundled into or added to the payment.
- Maintenance, repairs and utilities are real monthly costs even when they do not arrive as a monthly bill.
- A fair comparison also counts the equity you build and what your down payment could have earned elsewhere.
A rent check and a mortgage payment look like the same kind of number, but they are not. Rent usually bundles many costs of housing into one amount. A mortgage payment covers only some of them. To compare the two fairly, you need to line up every cost on both sides.
What renting really costs each month
Start with the rent itself, then add everything else you pay because you live there:
- Renters insurance
- Utilities you pay yourself, and which ones your rent already includes
- Parking, storage, pet rent and any monthly amenity or service fees
- A realistic allowance for rent increases at renewal
Renting also has one-time costs, such as a security deposit, application fees and moving, but they are usually modest compared with the costs of buying.
What owning really costs each month
Principal and interest
This is the loan payment itself, and it depends on the loan amount, the interest rate and the term. With a fixed-rate mortgage it stays the same for the life of the loan. With an adjustable-rate mortgage it can change after the initial period.
Property taxes
Property taxes are set locally and can change when your home is reassessed or when local rates change. You can often look up the current tax bill for a specific property through the county or city assessor. Keep in mind that the bill may change after a sale.
Homeowners insurance
Lenders require homeowners insurance. Premiums vary widely by location, the age and type of home, and the coverage you choose, and they can rise at renewal. Standard policies generally do not cover flood damage, and earthquake coverage is usually separate too. Get real quotes for the kind of home you are considering.
Mortgage insurance
Conventional loans with less than 20 percent down typically require private mortgage insurance. FHA loans have their own mortgage insurance premiums. Ask each lender how much it adds and under what conditions it can be removed.
Association dues
Condominiums and many neighborhoods charge homeowners association dues. These can rise over time, and associations can charge special assessments for large projects.
Utilities
A house often costs more to run than an apartment. You may pay water, sewer and trash yourself for the first time, and more space means more to heat and cool.
Maintenance and repairs
This is the cost renters most often leave out. Some planners use a rule of thumb of setting aside about 1 percent of the home's value each year, but older homes and homes with aging roofs or systems can need more. Treat it as a monthly line in your budget, even though the bills arrive unevenly.
Many lenders collect part of your property taxes and insurance with each mortgage payment, hold it in an escrow account, and pay those bills for you when they are due. That is why a quoted "monthly payment" may or may not include taxes and insurance. Always ask which one you are looking at.
A side-by-side worksheet
Use this as a checklist. Fill in your own estimates for a specific rental and a specific type of home in the same area.
| Cost | If you rent | If you own |
|---|---|---|
| Housing payment | Monthly rent | Principal and interest |
| Property taxes | Usually built into rent | Annual bill divided by 12 |
| Insurance | Renters insurance | Homeowners insurance, plus flood if needed |
| Mortgage insurance | Not applicable | If your down payment or loan type requires it |
| Fees and dues | Parking, pet and amenity fees | Association dues and assessments |
| Utilities | The ones not included in rent | All of them, often including water and trash |
| Maintenance | Mostly the landlord's | A monthly set-aside for repairs |
What does not fit neatly in a monthly budget
Equity
Part of each mortgage payment reduces what you owe, and that becomes equity. In the early years, more of each payment goes to interest and less to principal. Home values can rise, which adds to equity, but they can also fall.
What your down payment could have earned
Money you put into a home is no longer in savings earning interest. Economists call this an opportunity cost, and a fair comparison counts it.
Taxes
Mortgage interest and property taxes may be deductible, but only if you itemize, and many households take the standard deduction instead. A qualified tax professional can tell you whether it would make a difference for you.
One-time costs
Closing costs when you buy and selling costs when you leave are large. Spread them across the years you expect to stay to see their real monthly weight.
How to run the comparison
- Choose a specific kind of home in a specific area, not an average.
- Gather real numbers: current tax bills, insurance quotes, and Loan Estimates from more than one lender.
- Fill in both columns of the worksheet above.
- Add a cushion to the owning side for the unexpected.
- Test it: what if the rate were higher, taxes rose, or a major repair came in the first year?
If owning still works under those tougher assumptions, that is a meaningful sign. If it only works in the best case, you have learned something valuable before signing anything.
Helpful official resources
Public sources for your own research. MoveToOwn is not affiliated with any of these organizations.
This guide is general education, not advice for your situation. Rules, programs and costs vary by state, lender and loan type, so confirm the details with a qualified professional before you make a decision.
