The Honest Buy-vs-Rent Comparison

The mortgage-to-rent ratio compares the full monthly cash cost of owning a home — principal and interest, property taxes, insurance, the often-forgotten 1% annual maintenance budget, and HOA fees — against the rent on a comparable property. A ratio below 1 means buying is cheaper out of pocket today; above 1, renting is. But the ratio is only the starting point: owning converts part of that payment into equity (about $3,500 of principal in year one on a $400,000 home with 20% down at 6.5%), while renters can invest the difference between the two payments. The real comparison compounds that invested gap against home appreciation, so a ratio of 1.1–1.2 can still favor buying in a market with steady appreciation — and a ratio of 0.9 can lose if prices stagnate and you move in five years, since closing costs and the 20% down payment's lost returns are sunk.