Buy vs rent guide
Interest rates and buy vs rent
The mortgage rate sets the largest ongoing cost of buying, so it is one of the strongest levers in any buy vs rent comparison. This guide shows what a change in rate does to the payment, to the ten-year result and to the home price growth buying needs, using one fixed example.
Start with the payment
Take a $600,000 home with 20% down, so a $480,000 loan, amortized over 25 years. Canadian fixed-rate mortgages compound semi-annually by law, and the calculator models that. At a 4.5% rate the principal-and-interest payment is $2,657 a month.
Move the rate and the payment moves with it, even though the price, down payment and amortization are unchanged. Those extra dollars are not building equity at the same pace; more of every payment goes to interest. Over ten years the interest paid is $121,952 at 3%, $187,048 at 4.5% and $392,556 at 9%.
All figures use one illustrative base case: 3.5% yearly home price growth, $2,300 monthly rent growing 3% a year, a 5.5% investment return, 2% inflation and a 10-year stay in Alberta. These are planning inputs, not current market figures.
Rates from 3% to 9% side by side
In the comparison, both households spend the same total monthly housing budget. When the buyer's payment rises, the renter has more left to invest, so a higher rate helps the renter on both counts: the buyer pays more interest and the renter saves more.
| Mortgage rate | Monthly principal and interest | Buyer minus renter after 10 years | Break-even home price growth |
|---|---|---|---|
| 3% | $2,272 | +$121,554 | 1.67% |
| 4.5% | $2,657 | +$41,686 | 2.91% |
| 6% | $3,071 | -$41,347 | 4.06% |
| 7.5% | $3,511 | -$126,901 | 5.14% |
| 9% | $3,974 | -$214,368 | 6.14% |
What the rate does to the break-even rent
Another way to see the same thing is to ask what rent makes the two paths equal. For a 10-year stay, the break-even starting rent is about $1,622 a month at a 3% mortgage rate, $2,067 at 4.5% and $3,008 at 7.5%.
In other words, as rates rise, renting becomes the better choice at a progressively higher rent. If a comparable rental costs less than the break-even rent, renting finishes ahead on those inputs. The rent equivalent tool does this calculation with your own numbers, and the mortgage payment tool shows what a rate does to the payment.
Rates and home price growth work as a pair
The last column of the table shows how much yearly home price growth buying needs to finish level. At 3% the home needs only about 1.67% growth; at 9% it needs about 6.14%. High rates raise the bar that appreciation must clear, which is why rate and home price appreciation assumptions should be set together.
It is easy to see the risk of combining a high rate with a hopeful appreciation figure. At a 7.5% rate and 5% appreciation, buying still finishes about $11,294 behind after ten years on the base case. See buy vs rent in a high-rate market for more tests.
The rate you sign is not the rate you keep
Most Canadian mortgages have terms shorter than their amortization. The base case uses a five-year term on a 25-year amortization, so the rate is reset at renewal. The decision therefore depends on both the starting rate and the renewal rate.
On the base case, a 7.5% rate at the start with a return to 4.5% at renewal gives a ten-year result of -$58,018, compared with -$126,901 if the 7.5% rate persisted. A 4.5% rate that rises to 7.5% at renewal gives -$24,334, compared with +$41,686 if it stayed at 4.5%. The cost of an unlucky renewal is covered in mortgage renewal risk.
Qualifying versus comparing
Rates also decide whether you can buy. The federal stress test requires you to qualify at the greater of your contract rate plus 2 percentage points or 5.25%, so a rate rise reduces borrowing power as well as raising payments. Straight switches at renewal for uninsured mortgages are generally exempt, but confirm the current rule.
A buy vs rent comparison answers a different question from a qualification test. Passing the stress test means a lender is willing to lend; it does not say whether buying beats renting for you. Read mortgage stress test and buy vs rent for how the two fit together.
How to pick a rate for your comparison
Use a rate you can actually obtain for your situation, from a lender quote, rather than a headline advertised figure. Then test the range around it.
- Run your quoted rate, one point lower and one point higher.
- Run a renewal rate above and below your starting rate.
- Compare fixed and variable options by testing how each would behave under a rising-rate case.
- Read the break-even home price growth next to the result, and ask whether it is plausible for your property.
- Remember that the calculator does not predict future rates; the inputs are scenarios.
Questions people ask
At what mortgage rate does renting beat buying?
It depends on every other input. On the stated base case, the crossover over 10 years is about 5.26%, but changing rent, home price growth or the horizon moves it.
Does a lower rate always mean buying wins?
No. A low rate helps, but home price growth, rent, costs and the investment return still decide the result.
Why does a higher rate also help the renter's side?
Both households spend the same total monthly budget in the comparison, so a higher mortgage payment leaves the renter more to invest.
Should I use today's rate for the full period?
Usually not. Terms are shorter than amortizations, so test the renewal rate separately.
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.