As of May 2026, the 30-year fixed mortgage rate is in the 6.5–7.5% range (Freddie Mac PMMS). At 7%, a $400,000 mortgage carries a monthly principal-and-interest payment of about $2,661. The same loan at 3% (2021) was $1,686 per month — a 58% increase in payment on identical loan principal. Rate changes dwarf the effect of small price moves.
| Cost Category | Renting | Owning |
|---|---|---|
| Monthly housing payment | Rent — fully deductible against housing budget | PITI: Principal + Interest + Property Tax + Insurance |
| Down payment / security deposit | 1–2 months rent (low opportunity cost) | Typically 20% of purchase price — that capital earns nothing in the house |
| Maintenance | Landlord's problem | Rule of thumb: 1–2% of home value per year ($6,000–$12,000 on a $600K home) |
| PMI (Private Mortgage Insurance) | N/A | Required if down payment < 20%; typically 0.5–1.5% of loan per year |
| Building equity | None | Early years: mostly interest; equity builds slowly on a standard amortization schedule |
| Flexibility | High — can move in 30–60 days | Low — selling typically costs 6–8% of price (agent commissions + closing costs) |
Monthly Ownership Cost = PITI + Maintenance/12 + PMI + Opportunity Cost of Down Payment / 12
Amortization front-loads interest. On a 7% $500,000 mortgage, your first monthly payment of $3,327 includes $2,917 in interest and only $410 in principal. After five years of on-time payments, you have paid $199,620 — but your balance is only down by about $28,000. The rest went to interest. This is why the early years of homeownership build equity so slowly — and why selling before year five or six rarely recovers transaction costs.
PMI (Private Mortgage Insurance) protects the lender, not you, if you default. It typically costs 0.5–1.5% of the loan amount per year. On a $450,000 loan that is $2,250–$6,750 per year, or $188–$563 per month — a significant addition to your payment. PMI is typically removed once your equity reaches 20% of the original purchase price (Homeowners Protection Act of 1998). FHA loans have a different structure: mortgage insurance premium (MIP) often lasts the life of the loan regardless of equity.
Adjustable-rate mortgages (ARMs) offer a lower initial fixed rate (commonly 5/1, 7/1, or 10/1 — meaning 5, 7, or 10 fixed years before annual adjustments). A 5/1 ARM at 5.75% versus a 30-year fixed at 7.0% saves about $350/month on a $500,000 loan. The risk: if rates remain elevated when the ARM resets, your payment can jump significantly. ARMs make sense when you have high confidence you will sell or refinance before the fixed period expires.
| Question | Rent | Buy |
|---|---|---|
| Likely time in the home? | Under 5–6 years | Over 6 years (transaction costs require a long hold to break even) |
| Is your job / city stable? | Uncertain | High confidence for 5+ years |
| Monthly rent vs. 5% rule? | Below the 5% threshold | Rent exceeds 5% rule of home you want |
| Down payment available? | No (or better deployed elsewhere) | Yes, plus reserves for closing costs and repairs |
Transaction costs matter more than most buyers realize. Buyer's closing costs run 2–5% of purchase price; seller's costs run 6–8% (real estate commissions + transfer taxes + title + attorney). On a $500,000 home, roundtrip transaction costs can approach $40,000–$65,000. To break even, the home must appreciate enough to cover those costs — which takes longer at higher mortgage rates because less capital is available to compound in other assets.
Sit with the ideas.
You are comparing two options: (A) buy a $480,000 home with 20% down at 7.0% for 30 years, or (B) rent a comparable unit for $2,200/month and invest the $96,000 down payment at a 7% annual return. You plan to stay 4 years. Ignoring appreciation, which is likely the stronger financial outcome?