Is a Mortgage Cheaper than Renting – The Details

If you consider the full scenario then a mortgage is much cheaper than renting. If you want to own a house then you have to consider other things like down payment, interest on the mortgage loan, taxes, insurance, etc.  Moreover, there is property maintenance cost that can get expensive with the time. But that being said, if you stay in the same house and pay off the mortgage then you only have to pay taxes, insurance, and maintenance which is much cheaper than renting.

Reasons why Mortgage is Cheaper than Renting

There are many reasons a mortgage is much cheaper than renting. An example will give you a clear idea. Let’s say you have a mortgage of $240,000 with a hypothetical interest rate of 3% and the loan term is 30 years. So, your monthly mortgage payment will be about $1,012. However, this is not the only cost that you have to bear while owning a house. There are other costs like taxes, insurance, maintenance cost, etc. that will increase the total monthly cost. Now check the below table –

Monthly Cost	Homeowner	Renter
Mortgage payment	$1,012	$0
Rent	$0	$1,843
Property taxes	$312.50	$0 $125
Homeowners insurance	$125	$0
Repair/maintenance	$200	$0
Utilities (water/trash/etc.)	$250	$0
Total expense	$1,900	$1,843

So, there is not much difference between the cost of homeowner and renter. However, the main problem is the down payment. This is the main reason why people can’t afford their own house.

What Factors to Consider When Deciding Whether to Rent or Buy a Home?

If you are not sure whether you should purchase a house or rent then there are some factors available that will help you decide. Some key factors are –

• Location
• Intangibles
• Costs of a home purchase
• Costs of owning

1. Location

This is a very important factor because where you want to live will decide the buy vs. rent question for you. If you live in high-priced real estate places like San Francisco then renting will be the more affordable option for you. Other key factors are safe neighborhoods, good schools, proximity to public transportation, drive time to work, etc. Moreover, the supply of rentals also plays an important role in the renting cost.

2. Intangibles

There are some factors that we don’t have control and it’s not easy to make the decision. But these factors can be the decider for your renting or buying the house decision. They are –

• Stability
• Financial predictability
• Freedom to renovate
• Pride of ownership
• Growing home equity
• Flexibility

3. Costs of a Home Purchase

This is one of the biggest barriers for many people to having their own house. If you want to buy a home then you have to make a down payment and it could be 20% – 30% of the asset value, as well as there, are other costs. Moreover, you have to pay monthly mortgage payments along with the maintenance cost. So, if you don’t have a steady financial condition then renting a house will be the best option for you.

4. Costs of Owning

Buying a house doesn’t mean all your renting problems are solved. Well, it is true that you don’t have to worry about moving from one house to another but you have to think about various types of costs. You have to consider the closing cost which will be about 3% to 5% of the loan amount. Moreover, you have to pay mortgage fees, property taxes, homeowners insurance, HOA dues, etc. So, after considering all these factors you have to decide which will be the best option for you.

List of 31 USA Cities Where Buying House is Cheaper than Renting House

Colorado Springs, Colorado

• Average monthly rent: $1,551
• Average monthly mortgage payment: $1,545
• Median home value: $296,100

Phoenix, Arizona

• Average monthly rent: $1,392
• Average monthly mortgage payment: $1,383
• Median home value: $244,600

Arlington, Texas

• Average monthly rent: $1,555
• Average monthly mortgage payment: $1,545
• Median home value: $211,200

Stockton, California

• Average monthly rent: $1,569
• Average monthly mortgage payment: $1,547
• Median home value: $303,400

Greensboro, North Carolina

• Average monthly rent: $1,116
• Average monthly mortgage payment: $1,080
• Median home value: $147,400

Virginia Beach, Virginia

• Average monthly rent: $1,582
• Average monthly mortgage payment: $1,538
• Median home value: $269,600

Columbus, Ohio

• Average monthly rent: $1,204
• Average monthly mortgage payment: $1,158
• Median home value: $157,900

Anaheim, California

• Average monthly rent: $2,817
• Average monthly mortgage payment: $2,761
• Median home value: $600,400

Mesa, Arizona

• Average monthly rent: $1,417
• Average monthly mortgage payment: $1,360
• Median home value: $254,200

St. Louis, Missouri

• Average monthly rent: $932
• Average monthly mortgage payment: $866
• Median home value: $287,100

Philadelphia, Pennsylvania

• Average monthly rent: $1,260
• Average monthly mortgage payment: $1,192
• Median home value: $157,500

Albuquerque, New Mexico

• Average monthly rent: $1,240
• Average monthly mortgage payment: $1,171
• Median home value: $204,600

Oklahoma City, Oklahoma

• Average monthly rent: $1,084
• Average monthly mortgage payment: $1,006
• Median home value: $132,500

Sacramento, California

• Average monthly rent: $1,706
• Average monthly mortgage payment: $1,622
• Median home value: $327,200

Chula Vista, California

• Average monthly rent: $2,566
• Average monthly mortgage payment: $2,475
• Median home value: $541,600

Corpus Christi, Texas

• Average monthly rent: $1,372
• Average monthly mortgage payment: $1,277
• Median home value: $147,500

Anchorage, Alaska

• Average monthly rent: $1,817
• Average monthly mortgage payment: $1,708
• Median home value: $339,000

Jacksonville, Florida

• Average monthly rent: $1,259
• Average monthly mortgage payment: $1,137
• Median home value: $179,300

Norfolk, Virginia

• Average monthly rent: $1,292
• Average monthly mortgage payment: $1,142
• Median home value: $190,500

Milwaukee, Wisconsin

• Average monthly rent: $1,051
• Average monthly mortgage payment: $890
• Median home value: $123,500

Columbia, South Carolina

• Average monthly rent: $1,125
• Average monthly mortgage payment: $963
• Median home value: $136,900

Buffalo, New York

• Average monthly rent: $942
• Average monthly mortgage payment: $776
• Median home value: $86,800

Silver Spring, Maryland

• Average monthly rent: $2,236
• Average monthly mortgage payment: $2,047
• Median home value: $407,600

Indianapolis, Indiana

• Average monthly rent: $1,139
• Average monthly mortgage payment: $943
• Median home value: $145,800

Memphis, Tennessee

• Average monthly rent: $855
• Average monthly mortgage payment: $652
• Median home value: $86,900

Aurora, Colorado

• Average monthly rent: $1,910
• Average monthly mortgage payment: $1,706
• Median home value: $327,800

Toledo, Ohio

• Average monthly rent: $795
• Average monthly mortgage payment: $583
• Median home value: $71,800

St. Paul, Minnesota

• Average monthly rent: $1,494
• Average monthly mortgage payment: $1,268
• Median home value: $220,600

Santa Ana, California

• Average monthly rent: $2,731
• Average monthly mortgage payment: $2,484
• Median home value: $552,100

Cleveland, Ohio

• Average monthly rent: $857
• Average monthly mortgage payment: $579
• Median home value: $58,000

Baltimore, Maryland

• Average monthly rent: $1,286
• Average monthly mortgage payment: $978
• Median home value: $116,700

Cost of Homeownership in Numbers Vs. Cost of Renting in Numbers

Cost of Homeownership in Numbers

Expense	Cost per year/first year $	After 3 years, you’ll have spent $	After 5 years, you’ll have spent $	After 10 years, you’ll have spent $
Mortgage: principal and interest	15,112	45,335	75,558	151,116
Private mortgage insurance	1,250	3,750	6,250	10,729
Homeowners’ insurance	1,737.00	5,311	9,021	18,933
Property taxes	3,795.00	11,603	19,710	41,365
HOA/condo fees	3,240.00	9,906	16,827	35,315
Repairs and maintenance	9,100.00	27,822	47,262	99,188
Cost to sell (5%)	13,000	14,963	16,434	20,776
Equity gained	N/A	(39,265)	(68,685)	(155,515)
Total	47,234	79,425	122,377	221,907

Cost of Renting in Numbers

Expense	Cost in year 1 $	After 3 years, you’ll have paid $	After 5 years, you’ll have paid $	After 10 years, you’ll have paid $
Rent	12,984	39,697	67,434	141,523
Renters insurance	155	474	805	1689
Total	13,139	40,171	68,239	143,212

So, according to the above two tables, it is quite clear that homeownership becomes cheaper than renting. Moreover, once you pay off the mortgage (30 years) you might have a home worth $1.06 million (based on a 4.8 percent annual rise in home price). So, over the “30 years” time frame, buying a house will cost you $1,161,502 while renting will cost you $1,189,976!

FAQs about Is a Mortgage Cheaper than Renting

What are some examples of costs that a homeowner has to pay but not a renter?

There are some common types of cost that a homeowner have to pay but a renter don’t have to pay –

• Property tax
• Property insurance
• Water and sewer service
• Pest control
• Tree trimming
• House maintenance cost, etc.

Is It Better to Rent or Own a Home?

There is no definitive answer to this question because there are lots of factors available that decide whether renting or owning a house will be the better option for you. One key factor is your financial condition and personal goal. According to many financial experts, in terms of the long term owning a house is much cheaper than renting. So, you should consider the benefits and the costs of each option based on your income and savings, and decide which will be better for you.

Is Homeownership a Good Investment?

Yes, homeownership can be a good investment because if you own a home then you will be able to build equity. So, if you are financially solvent and if you don’t have any problem with the monthly mortgage payment and other home maintenance costs then homeownership will be a good investment for you.

References:

https://www.investopedia.com/articles/personal-finance/083115/renting-vs-owning-home-pros-and-cons.asp
https://www.nerdwallet.com/mortgages/rent-vs-buy-calculator

Last Updated on August 7, 2022 by Ana S. Sutterfield