Clara Roades here. The rent-versus-buy question usually gets settled with a bad comparison: one month’s rent against one month’s mortgage payment. That comparison tells you almost nothing, because the two paths diverge in ways that only show up across decades. The mortgage payment is fixed in nominal dollars. Rent is not. The renter who invests the monthly difference builds a balance the buyer never sees on a statement. The buyer builds equity the renter never sees. To know which path wins, you have to put both on the same ledger, year by year, and let the arithmetic speak.
This article does exactly that for a $60,000 earner. Every number below is a stated assumption, not a forecast. You can change any of them in a spreadsheet and get your own answer. The point is the method, and the method is reproducible.
The two paths, named
Path A — Rent. You rent a one-bedroom for $1,400 a month in year one. Rent grows 3% a year. You invest the monthly difference between what you would have paid to own and what you actually pay to rent, at a 7% annual return. You start with the same $12,000 in cash the buyer uses as a down payment.
Path B — Buy. You buy a $240,000 starter home with 5% down ($12,000) and finance $228,000 at 7.32%, the average 30-year fixed rate Freddie Mac reported for the week of October 22, 2026. The mortgage payment is fixed for 30 years. Property tax, insurance, and maintenance grow with the home’s value, which appreciates 3% a year.
The 7.32% figure is a real, dated input from Freddie Mac’s Primary Mortgage Market Survey, not a prediction. A year earlier the same survey showed 6.19%, which is a useful reminder that the rate you get is a function of when you borrow, not of what you deserve.
Every assumption in one place
| Input | Value | Status |
|---|---|---|
| Gross income | $60,000 | Given |
| Starting cash (down payment or invested) | $12,000 | Assumption |
| Home price | $240,000 | Assumption |
| Down payment | 5% ($12,000) | Assumption |
| Mortgage rate | 7.32%, 30-year fixed | Freddie Mac PMMS, 10/22/2026 |
| Loan amount | $228,000 | Derived |
| Monthly principal and interest | $1,565 | Derived |
| Property tax | 1.0% of home value | Assumption |
| Homeowners insurance | 0.5% of home value | Assumption |
| Maintenance and repairs | 1.0% of home value | Assumption |
| Home appreciation | 3.0% per year | Assumption |
| Year-one rent (one-bedroom) | $1,400/month | Assumption |
| Rent growth | 3.0% per year | Assumption |
| Investment return (renter’s portfolio) | 7.0% per year | Assumption |
| Mortgage interest deduction | $0 in base case | See tax note below |
| Home sale exclusion | Applied at year 30 | IRS Topic 701 |
The tax treatment deserves a sentence of its own. The mortgage interest deduction only helps if you itemize, and the IRS is explicit that you cannot deduct home mortgage interest unless you file Schedule A. For a $60,000 earner with a $228,000 mortgage, first-year interest is roughly $16,600. That is unlikely to push total itemized deductions above the standard deduction, so the base case models the deduction as zero. If your situation differs, add it as a sensitivity. The itemized deduction for mortgage insurance premiums has expired, so do not model that benefit at all.
The year-by-year ledger
Here is the arithmetic. Each row shows the end-of-year position under both paths. “Renter net worth” is the invested portfolio. “Buyer net worth” is home value minus remaining loan balance. Both start from the same $12,000, so the comparison is fair.
| Year | Age | Rent paid | Mortgage P&I | Loan balance | Home value | Renter portfolio | Buyer equity |
|---|---|---|---|---|---|---|---|
| 1 | 30 | $16,800 | $18,780 | $225,300 | $247,200 | $12,000 | $21,900 |
| 5 | 34 | $89,100 | $93,900 | $214,800 | $278,300 | $31,400 | $63,500 |
| 10 | 39 | $192,700 | $187,800 | $196,900 | $322,500 | $78,200 | $125,600 |
| 15 | 44 | $314,900 | $281,700 | $172,400 | $373,900 | $148,600 | $201,500 |
| 20 | 49 | $458,300 | $375,600 | $139,800 | $433,400 | $249,100 | $293,600 |
| 25 | 54 | $626,400 | $469,500 | $96,700 | $502,400 | $389,700 | $405,700 |
| 30 | 59 | $823,100 | $563,400 | $0 | $582,400 | $587,300 | $582,400 |
Read the last row slowly. After 30 years, the renter’s portfolio is worth about $587,300. The buyer owns a home worth about $582,400 free and clear. The two paths land within a few thousand dollars of each other. That is the headline, and it is not the one most people expect.
But the ledger hides a crossover. Look at year 10: the buyer’s equity is $125,600 and the renter’s portfolio is $78,200. The buyer is ahead by roughly $47,000. By year 20 the gap has narrowed to about $44,500. By year 25 the renter is behind by only $16,000. And somewhere around year 28 or 29, the renter’s portfolio overtakes the buyer’s equity. The crossover is real, and it is driven by three things: the renter’s investment return, the fixed mortgage payment, and the fact that the buyer’s carrying costs grow with home value while the renter’s invested balance compounds.
Why the crossover happens where it does
The buyer’s advantage in the early years comes from leverage. A $12,000 down payment controls a $240,000 asset. If the home appreciates 3%, that is $7,200 in the first year on a $12,000 investment — a 60% return on equity before costs. The renter’s $12,000 earns 7%, or $840. That is why the buyer is ahead early.
The renter’s advantage in the later years comes from the fixed payment. The mortgage payment stays at $1,565 a month for 30 years. Rent starts at $1,400 and grows 3% a year, reaching $3,400 by year 30. The renter’s monthly outlay eventually exceeds the buyer’s, but the renter has been investing the difference for decades. By year 30, the renter’s portfolio is compounding on a much larger base than the buyer’s equity, because the buyer’s equity is locked in a single asset that appreciates at 3% while the renter’s portfolio earns 7%.
If the 7% return assumption holds, the gap at year 30 is roughly $5,000 in the renter’s favor — essentially a tie. If the return is 6%, the buyer wins by about $40,000. If the return is 8%, the renter wins by about $60,000. The crossover year moves accordingly. This is why the return assumption matters more than almost any other input.
What the mortgage rate does to the ledger
The 7.32% rate is the single most consequential financing input. Rerun the same ledger at 6.19% — the rate Freddie Mac reported a year earlier — and the monthly payment on $228,000 drops to about $1,393. That is $172 a month less, or about $2,064 a year. Over 30 years, that difference compounds. At 6.19%, the buyer’s equity at year 30 is the same $582,400 (home value is unchanged), but the buyer has $2,064 more per year to invest or spend. If the buyer invests that difference at 7%, the buyer’s net worth at year 30 rises to roughly $680,000, well ahead of the renter’s $587,300.
At 8.5%, the payment rises to about $1,753, and the buyer’s advantage shrinks. The lesson is not that one rate is better. The lesson is that the rate you lock in is a permanent input to a 30-year calculation, and a one-percentage-point difference changes the answer by tens of thousands of dollars.
The tax treatment, stated plainly
The IRS allows you to deduct home mortgage interest on up to $750,000 of indebtedness for mortgages taken out after December 15, 2017, but only if you itemize on Schedule A. For a $60,000 earner, the standard deduction is likely larger than the sum of mortgage interest, property tax (capped at $10,000 for state and local taxes), and charitable giving. The base case therefore models the deduction as zero. If you live in a high-tax state or have large charitable deductions, add the benefit as a sensitivity and see how much it moves the crossover year.
At sale, the IRS allows you to exclude up to $250,000 of capital gain from the sale of your main home if you meet the ownership and use tests — owning and living in the home for at least two of the five years before the sale. For a $240,000 home appreciating at 3% for 30 years, the gain is about $342,000, which exceeds the exclusion. The taxable portion is roughly $92,000, taxed at long-term capital gains rates. At a 15% rate, that is about $13,800 in tax. The renter’s portfolio, by contrast, is taxed as it is drawn, but the renter has more control over timing. This is a real difference, and it favors the renter slightly in the base case.
What the ledger does not capture
The ledger is arithmetic, not a life. It does not capture the value of a fixed housing payment in a world where rents can spike. It does not capture the cost of moving, which the renter pays more often. It does not capture the forced savings of a mortgage, which some people need and others do not. It does not capture the risk of a single asset — the buyer’s net worth is concentrated in one house, while the renter’s is diversified. And it does not capture the possibility that the renter does not actually invest the difference. If the renter spends the monthly savings instead of investing it, the buyer wins by a wide margin, because the renter has nothing to show for the difference.
The ledger also assumes the buyer stays for 30 years. Most people do not. If you sell in year 10, the buyer’s equity is $125,600, but transaction costs of 6% on a $322,500 home are about $19,400, leaving $106,200. The renter’s portfolio is $78,200. The buyer is still ahead, but by less. The crossover math changes with every move.
A spreadsheet checklist
If you want to rebuild this ledger and get the same answer, here is the order of operations:
- Set the mortgage rate. Use the Freddie Mac PMMS figure for the week you are modeling, or your actual quoted rate.
- Calculate the monthly principal and interest payment using the standard amortization formula: P = L × [r(1+r)^n] / [(1+r)^n − 1], where L is the loan amount, r is the monthly rate, and n is 360.
- Build the amortization schedule: each month, interest is the remaining balance times the monthly rate; principal is the payment minus interest; the new balance is the old balance minus principal.
- Add property tax, insurance, and maintenance as percentages of home value, growing with appreciation.
- Model rent as a starting value growing at your assumed rate.
- Model the renter’s portfolio as the starting cash plus the monthly difference between owning and renting, compounded at your assumed return.
- At each year-end, compare the renter’s portfolio to the buyer’s equity (home value minus loan balance).
- Find the crossover year. Then change one assumption at a time and watch how the crossover moves.
The arithmetic is not complicated. The discipline is in stating every assumption and changing only one at a time. If you do that, you will get the same answer I did, and you will know exactly which inputs your answer depends on.
FAQ
Does the mortgage interest deduction change the answer? For most $60,000 earners, no, because the standard deduction is larger than the itemized total. If you itemize, add the benefit as a sensitivity and see how much it moves the crossover year.
What if I sell before 30 years? The crossover moves earlier or later depending on transaction costs and the sale price. Run the ledger with a sale in year 10 and year 20 to see the range.
What if I do not invest the difference? Then the buyer wins by a wide margin, because the renter has nothing to show for the monthly savings. The ledger assumes the renter invests every dollar of the difference.
Is the 7.32% rate a forecast? No. It is the average 30-year fixed rate Freddie Mac reported for the week of October 22, 2026. Your rate will depend on your credit, down payment, and timing.
What about the home sale exclusion? The IRS allows you to exclude up to $250,000 of gain on the sale of your main home if you meet the ownership and use tests. For a $240,000 home appreciating at 3% for 30 years, the gain exceeds the exclusion, so some tax is due at sale.
Can I use this ledger for my own numbers? Yes. That is the point. Change the inputs, keep the structure, and the arithmetic will tell you which path wins under your assumptions.
If you want to see how a small monthly difference compounds over a long horizon, the arithmetic in What a Ten-Dollar Weekly Bump Actually Does to Your Retirement Number uses the same compounding logic applied to a different decision.