Is It Better to Rent or Buy in 2026?

At 7% mortgage rates, renting saves roughly $45,000 over 7 years

At a 7% mortgage rate, buying a $400,000 home with 10% down costs approximately $45,000 more than renting at $2,000/month over a 7-year period. When you factor in PMI, property taxes, insurance, maintenance, closing costs, and the opportunity cost of your down payment, renting comes out ahead in this scenario. The break-even point where buying starts to win is roughly 9 to 10 years.

The full cost of buying vs. renting a $400,000 home

The sticker price of a home is just the beginning. Here is what buying a $400,000 home actually costs over 7 years:

• Down payment: $40,000 (10% of purchase price)
• Monthly mortgage (P&I): ~$2,395/month on a $360,000 loan at 7% over 30 years
• PMI (private mortgage insurance): ~$150/month until you reach 20% equity (required with 10% down)
• Property tax: ~$417/month (assuming 1.25% of home value annually)
• Homeowners insurance: $167/month ($2,000/year)
• Maintenance and repairs: ~$333/month (budget 1% of home value annually)
• Closing costs (buying): ~$12,000 (3% of purchase price)
• Closing costs (selling in year 7): ~$26,400 (6% agent commission on estimated $440,000 sale price)

Total monthly cost of owning: ~$3,462 (not including closing costs)

After 7 years, you have paid approximately $290,800 in total housing costs. You have built roughly $58,000 in equity (through principal paydown and modest 1.5% annual appreciation). But subtract the $12,000 buying costs and $26,400 selling costs, and your net equity benefit is only about $19,600.

Now compare that to renting:

• Monthly rent: $2,000 (assuming 3% annual increases)
• Renter’s insurance: ~$15/month
• Total 7-year rent cost: ~$184,700
• Investment returns on your $40,000 down payment: If invested at 7%, your $40,000 grows to ~$64,200 — a gain of $24,200

Net cost of renting over 7 years: ~$160,500 ($184,700 minus $24,200 in investment gains) Net cost of buying over 7 years: ~$205,200 ($290,800 minus $19,600 equity plus $38,400 in transaction costs, simplified)

The gap is approximately $45,000 in favor of renting.

Why “renting is throwing money away” does not hold at 7%

The conventional wisdom that “renting is throwing money away” does not hold up when mortgage rates are at 7%. Here is why:

The 5% rule offers a quick sanity check. Multiply the home price by 5% and divide by 12. For a $400,000 home, that is $1,667/month. If your rent is below this amount, renting is likely cheaper. At $2,000/month rent, you are above the threshold — but the gap is small, and once you add PMI and the opportunity cost of a low down payment, buying still loses in this scenario.

Opportunity cost is the hidden factor most people ignore. Your $40,000 down payment sitting in a home earns appreciation (maybe 2 to 4% annually in a normal market). That same $40,000 invested in a diversified index fund has historically returned 7 to 10%. The difference compounds significantly over time.

Transaction costs destroy short-term ownership. The $38,400 in combined buying and selling costs represents nearly 10% of the home price. You need several years of appreciation just to break even on those costs, which is why the 7-year timeline tips toward renting.

When buying wins: lower rates, longer timelines, higher rents

• Mortgage rates drop to 5%: Monthly P&I falls to ~$1,932, cutting $463/month from ownership costs. At 5%, the break-even point shifts to about 5 to 6 years, and buying becomes the clear winner over a 7-year horizon.
• You put 20% down ($80,000): PMI disappears entirely, saving ~$150/month. But you also lose the investment returns on that extra $40,000. The net effect is roughly neutral — the PMI savings and the lost investment gains largely cancel each other out.
• You plan to stay for 12 years instead of 7: Buying wins decisively. More years to amortize transaction costs, more equity buildup, and more appreciation. The longer you stay, the more ownership favors you.
• Rent is $2,500/month instead of $2,000: The renting advantage shrinks significantly. At $2,500/month rent with 3% annual increases, the 7-year comparison is nearly a toss-up. In high-rent markets, buying becomes more competitive even at elevated mortgage rates.

The rent-vs-buy decision depends heavily on your local market, how long you plan to stay, and current mortgage rates. Use the Rent vs. Buy Calculator to plug in your actual rent, home prices, and down payment amount — the calculator accounts for all the hidden costs on both sides and shows you exactly where the break-even point falls for your situation.