Finance · Glossary
What is Rent vs. Buy?
Quick definition
The financial decision between paying a landlord to occupy a home vs. taking a mortgage to own one. Each has different long-term costs.
Full explanation
Rent vs. buy is the comparison of total cost of renting a similar home vs. buying one with a mortgage. The buy side includes down payment, mortgage payments, property taxes, insurance, maintenance, and opportunity cost. The rent side includes rent and renter's insurance. Historically, buying wins long-term in most markets (15+ year horizons) because (1) you build equity, (2) property tends to appreciate, (3) mortgage payments are "locked in" while rents rise with inflation. But buying is not always better: high-cost markets, short time horizons, transaction costs, and maintenance can make renting the rational choice. The breakeven horizon is typically 5–10 years.
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Related terms
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APR (Annual Percentage Rate)
The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.
APY (Annual Percentage Yield)
The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.
Compound Interest
Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.
Principal
The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.
Amortization
Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.
Last reviewed: June 15, 2026 • Category: Finance