Buy vs rent guide
Seven buy vs rent myths, tested
Few topics collect as many confident slogans as buy vs rent. Some contain a real insight, some are only half true, and some do not apply in Canada at all. Below, seven familiar claims are checked against one illustrative example: a $600,000 home with 20% down, a 4.5% mortgage on a 25-year amortization and a comparable $2,300 rental.
Myth 1: Rent is money down the drain
The claim is that rent buys nothing, while a mortgage payment builds equity. Part of that is true: a share of every payment reduces the loan. But the other costs of owning disappear just as surely as rent does.
Over ten years in the example, the owner pays about $187,048 in mortgage interest, $45,752 in property tax, $16,425 in home insurance, $70,388 in maintenance and $19,709 in extra utilities. That is about $339,322 that is not recovered. The renter spends about $319,688 on rent and tenant insurance over the same period. The owner does build equity, and price growth helps, but 'rent is wasted and owning is not' oversimplifies. Both sides spend money they do not get back.
Myth 2: Buying always wins in the long run
In the base example, owning does finish ahead: by about $41,686 at ten years and $91,982 at fifteen. But the result is conditional. If the same loan renews at 6.5% instead of 4.5%, the ten-year result drops to −$2,113. If the mortgage rate is 6.5% for the whole period, it is −$69,616.
The price assumption matters as well. At 2% annual appreciation, the sustained break-even is about 38.9 years, and at 0% or 1% buying does not catch up within 40 years. 'Long run' needs a reason. See break-even explained.
Myth 3: Renting is always cheaper
On a monthly cash basis, renting is cheaper in the example: $2,325 against $3,757 in the first month. But that is a snapshot. Rent rises 3% a year in the model while most of the owner's payment is fixed for the term, and the owner builds equity along the way.
The more useful measure is net worth at the end of your stay. At ten years it favours the owner by $41,686; at three years it favours the renter by $19,514. So renting is usually cheaper at the start and not necessarily at the finish.
Myth 4: You need 20% down to buy
You do not. The federal minimum down payment is 5% of the first $500,000 plus 10% of the portion from $500,000 to under $1.5 million, with 20% required at $1.5 million or more. On a $600,000 home that is $35,000. Below 20% down, mortgage default insurance is required, and the premium, a percentage of the loan such as 4.00% for 5% to 9.99% down, is usually added to the mortgage.
The cost is real. At the minimum down payment, the example's premium is $22,600 and the ten-year result is +$14,314 with a break-even near 8.9 years. At 20% down the premium is zero, the result is +$41,686 and the break-even is near 5.7 years. Smaller down payments work, but they usually mean a longer wait to come out ahead. See CMHC insurance and buy vs rent.
Myth 5: Canadians can deduct mortgage interest
In the US, many homeowners deduct mortgage interest. In Canada, mortgage interest and property tax on a principal residence are not tax-deductible, so the cost of owning is not reduced by a tax refund. Any calculator that assumes otherwise overstates the owner's advantage.
Canada does have its own advantages. The gain on the sale of a home that qualifies as a principal residence is generally tax-free, provided you report the sale on your return, and first-time buyers may use the FHSA and the RRSP Home Buyers' Plan. Rules and eligibility change, so check the current rules for each.
Myth 6: Only homeowners get tax-advantaged savings
Tax-advantaged room is not exclusive to buyers. A renter can use TFSA, RRSP and FHSA room to shelter the money they invest instead of buying. Savings in these accounts compound tax-free or tax-deferred, and in the right circumstances that narrows the owner's edge.
In the example, a renter who loses 25% of investment returns to tax ends up with $377,499 instead of $418,379, and the owner's lead grows from $41,686 to $82,565. Sheltering growth is the difference between those two outcomes. The guide on rent and invest the difference looks at the assumptions in more detail.
Myth 7: Prices only go up, and a rule of thumb settles it
Home prices do not rise in a straight line, and past growth is not a promise. In the example, 3.5% annual growth produces a $846,359 home after ten years. If prices instead fall 2% a year, the owner's net worth is about $118,906 against the renter's $387,975, a gap of $269,069 in the renter's favour. At 0% growth the gap is $174,013.
Shortcuts such as the 5% rule or the price-to-rent ratio are helpful filters, but they leave out growth, horizon and financing. In the example the 5% rule's $2,500 threshold sits above the $2,067 break-even rent over ten years. A quick rule can point in the wrong direction when assumptions differ. Use it to start, not to finish.
Questions people ask
Is paying rent really throwing money away?
Rent is a cost that does not come back, but so are the owner's interest, property tax, insurance and maintenance. In the $600,000 example, those owner costs total about $339,322 over ten years against about $319,688 for the renter, before counting the equity the owner builds.
Does buying always beat renting if I wait long enough?
No. It depends on price growth, mortgage rates and costs. With weak growth or a high rate, the break-even can be decades away or may never arrive.
Do I really need 20% down?
No. Federal rules allow a lower down payment, with mortgage default insurance below 20% and a 20% minimum at $1.5 million or more. The insurance premium and higher payments make it costlier.
Why do US articles give different answers?
US mortgage interest and property tax are often deductible, and Canadian rules differ on taxes, mortgage terms and compounding. Use Canadian assumptions for Canadian decisions.
Official references
Educational information, not financial, tax, legal or mortgage advice. Rules and rates change; confirm current details with an official source or a qualified professional.