Mortgage payment vs rent over time

Why the first year misleads

Suppose a $600,000 home with 20% down ($120,000) and a $480,000 mortgage at 4.5% over a 25-year amortization, compared with renting a similar home for $2,300 a month. These are illustrative planning inputs, not market data.

In the first month the owner's total cost is about $3,757 and the renter's is $2,325, including tenant insurance. The owner appears to spend about $1,432 more every month. That gap is real cash, and it is the reason many households conclude that renting is cheaper.

But the first month is the widest the gap will ever be in this example. One side of the comparison is fixed and the other keeps moving. A single snapshot cannot show the direction of travel, and it ignores that part of every mortgage payment is not a cost at all: in year one, about $891 a month of the payment is principal that becomes home equity.

What stays flat and what keeps rising

A fixed-rate mortgage payment does not change during the term. Over time, more of it goes to principal and less to interest. In this example the monthly interest falls from about $1,765 in year one to about $1,326 in year ten, while the principal portion rises from $891 to $1,330. The payment itself stays at about $2,657 throughout.

Rent usually moves in the other direction. This example assumes 3% a year, so $2,300 becomes about $3,001 by year ten. Where rent is regulated, the allowed increase may be lower. Ontario's 2026 guideline is 2.1% for covered units, and units first occupied after November 15, 2018 are exempt from it. British Columbia's 2026 maximum is 2.3%, which should be confirmed each year. Alberta has no cap. See rent control by province.

Owning has costs that rise too. Property tax and maintenance follow the home’s value, and insurance and utilities follow inflation. In this example those items grow from about $1,100 a month to about $2,300 a month by year 25, so the owner’s total still climbs, only more slowly than rent. After the final mortgage payment the payment disappears, but those other costs continue.

Rent and owner cost across 25 years

Suppose the same $600,000 home with the starting values above, plus 3.5% yearly price growth, 2% inflation, property tax of 0.65% of value, maintenance of 1% of value, $1,500 a year for home insurance and $150 a month in extra utilities. Each figure below is a monthly average for that year.

The table compares monthly cash flow, which is not the same as asking who is better off. On net worth, the calculator shows renting ahead early because of closing and selling costs. By year 6 buying is ahead by about $3,102, by year 10 by about $41,686 and by year 25 by about $221,716, with the renter investing the monthly difference at 5.5% a year. These figures come from assumptions, not forecasts. See break-even explained.

What if rent grows faster?

Raise rent growth from 3% to 4% a year and keep everything else the same. Rent reaches about $3,274 by year ten, $4,846 by year 20 and $5,896 by year 25. Rent alone passes the mortgage payment in year 5.

The renter's total cost catches up with the owner's total in year 19. By year 25 the renter pays about $5,936 a month and the owner about $4,983. After 10 years buying is ahead by about $59,344, compared with $41,686 at 3%, and break-even moves from about 5.7 years to about 5.2 years.

One percentage point does not sound like much, but it compounds. The reverse is also true: if rent grows at 2% or less, which can happen with regulated rents, the owner's advantage shrinks. See rent growth assumptions.

Renewal is a reset, not a constant

A fixed payment is flat only until the term ends. At renewal the lender re-prices the remaining balance at the then-current rate over the remaining amortization. This example uses a five-year term, so the first renewal comes at the end of year 5.

Suppose the rate is 6.5% at that renewal and at each one afterwards, instead of 4.5%. The balance after five years is about $421,423 and the payment rises from about $2,657 to about $3,121, an increase of about $464 a month. The owner's total cost in year ten is about $4,574 instead of $4,110.

Rent alone does not pass the mortgage payment until year 12, and the renter's total does not catch up with the owner's within 25 years. After 10 years renting is ahead by about $2,113, and break-even moves from about 5.7 years to about 18.3 years.

Combine both stresses, with rent growing at 4% and a 6.5% renewal rate. Buying is ahead by about $15,546 after 10 years, break-even is about 7.2 years and the renter's total catches up in year 22. A rise in rent growth can offset much of a rate shock, and neither is predictable. See mortgage renewal risk.

• Test your own renewal rate with the Rate at renewal field.
• A shorter term means more renewals and more exposure to rate changes.
• A variable-rate mortgage can change sooner than at renewal.

Testing this for your own situation

Open the buy vs rent calculator and enter your own price, rate, rent and costs. Set rent growth to the figure you expect, then change Rate at renewal to something higher than today's rate and watch how the result and break-even move. The “What is driving this result” panel shows year-one costs for both households, and Download CSV gives yearly rent, interest, principal, property tax and maintenance that you can divide by 12.

A first-month figure alone is not enough. Look at the cost in the first month, what it becomes after the first renewal, and what rent looks like by then. The rent equivalent tool shows the rent that would make the two paths tie.