Renting vs. Buying a Home — What the Math Actually Shows

Your monthly mortgage payment is only part of the real cost of homeownership. The number this calculator shows covers principal and interest — but your actual monthly obligation will include property taxes (typically 1–2% of home value annually), homeowner’s insurance ($100–200/month), and PMI if your down payment is under 20% (typically 0.5–1.5% of the loan annually). Add 1% of home value per year for maintenance and repairs, and the true cost of owning a home is often 30–40% higher than the mortgage payment alone.

Interest rate has an outsized impact on total cost. On a $400,000 loan, the difference between 6% and 7% interest is over $90,000 in total interest paid over 30 years — more than most people earn in two full years. The rate you accept the day you close locks in that number for the life of the loan unless you refinance.

How to Read Your Numbers

• Monthly payment under 28% of gross income: generally considered affordable — the front-end debt-to-income ratio most lenders use as a baseline
• Total debt payments under 36% of gross income: the full DTI rule; exceeding this makes approval harder and monthly payments more financially fragile
• Total interest paid greater than purchase price: common on 30-year loans at normal rates — not a sign something is wrong, but a reason to consider refinancing when rates drop meaningfully

Tips

• Even one extra principal payment per year reduces a 30-year mortgage by four to five years and can save tens of thousands in total interest.
• Compare 15-year versus 30-year before deciding — the monthly payment is higher but total interest is often less than half on the 15-year option.
• Points (prepaid interest) make sense if you plan to stay in the home seven or more years — calculate your break-even month before paying them.
• Get pre-approved before house hunting — it clarifies your real budget rather than an aspirational one and strengthens every offer you make.
• Factor in closing costs (2–5% of loan amount) in your total cash needed — they are due at signing, not rolled into most conventional loans.

Frequently Asked Questions

What credit score do I need for the best mortgage rate?

760 or above generally qualifies for the best available rates. Below 620 and most conventional lenders will decline. FHA loans are available down to 580 with a 3.5% down payment, but come with mandatory mortgage insurance that adds to the monthly cost.

Should I pay points to lower my interest rate?

Divide the upfront cost of the points by the monthly savings to find your break-even month. If you plan to stay in the home past that point — typically five to eight years — points make financial sense.

Is a 15-year or 30-year mortgage better?

A 30-year loan gives lower payments and more cash flow flexibility. A 15-year loan saves significantly on total interest — often more than $100,000 on a $400K loan. If you can comfortably afford the 15-year payment without straining other savings goals, it is usually the better long-term financial decision.

What is PMI and how do I avoid it?

Private Mortgage Insurance protects the lender if you default. You pay it when your down payment is under 20%. Avoid it by putting 20% down, or request cancellation once your equity reaches 20% through appreciation and principal paydown.