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Equity? You're not throwing money away by renting. Here's the math

Henry JoHenry Jo··
Equity? You're not throwing money away by renting. Here's the math

The case against renting usually comes down to one line: you're paying off someone else's mortgage and not getting any equity for yourself. The first part is mostly true. Rent buys a place to live and nothing else. But a new buyer's monthly payment isn't all equity either, and at today's rates, most of it isn't.

Take a home at Zillow's typical US value of about $366,900, bought with 10% down at the 7.40% average 30-year rate Freddie Mac reported for the week of October 15. After a down payment of $36,690, the loan is about $330,210, and the principal and interest come to about $2,286 a month. In the first year, those payments total $27,436. About $24,332 of that is interest, and $3,104, or 11%, pays down the loan. After five years, the buyer has paid off about $18,086 of principal.

Interest isn't the only cost an owner never gets back. Property taxes and insurance come on top of the mortgage, and both have climbed quickly. Property taxes rose 31% from 2019 to 2025 and average monthly insurance premiums jumped 72%, the Harvard Joint Center for Housing Studies reported in June. Repairs are the owner's bill too.

That's the fairer comparison: rent against the costs of owning that don't come back. On that basis, renting has real advantages.

It's cheaper month to month. A typical new buyer's payment, including taxes and insurance, was $3,014 a month in August, compared with typical rent of $1,948, Zillow found in September, a gap of $1,066. Renting was cheaper in all 50 of the largest metro areas. Typical US rent was $1,932 in September 2026, according to RentDataNow data built on the Zillow Observed Rent Index.

You can reinvest the interest you pay the bank. At a 7.40% mortgage rate, buying a $369,900 home with 10% down means borrowing $332,910 and paying about $2,305 a month in principal and interest. In the first year alone, the homeowner pays approximately $24,531 in interest, money that goes to the lender rather than building equity. Only $3,129 of the year's $27,660 in mortgage payments reduces the loan balance. That's about $2,044 a month in interest during the first year. A renter who avoids that mortgage interest could instead invest money saved from renting, potentially earning returns that compound over time. For perspective, investing $2,044 a month at an assumed 5% annual return would grow to roughly $139,000 over five years, including contributions. Of course, the renter would still have to pay rent, so the actual amount available to invest depends on the difference between rent and the total cost of owning. The point is that mortgage interest, like rent, is money you don't get back, and owning a home doesn't automatically mean every housing dollar is building wealth.

Your cash stays yours. The $36,690 down payment on that $366,900 home, plus closing costs which pushes it closer to $40,000, is money a renter can keep invested or saved for emergencies. Zillow estimated that investing the $1,066 monthly gap at the 10-year Treasury yield would earn about $322 in the first year and compound to about $8,041 over five years. That only works if the renter actually invests the difference.

You can move. About 21.6% of people living in rented homes moved in 2024, compared with 6.2% in owned homes, according to the US Census Bureau. For someone who might change jobs or cities in a few years, renting avoids the cost of buying and then selling a home on a short timeline, when interest has eaten most of the payments.

Repairs aren't your problem. A broken water heater or a leaking roof is the landlord's expense in a rental, and most states require landlords to keep homes livable. We cover what to do when they don't in how to get your landlord to make repairs.

Owning still wins for many people over a long stretch. The principal paid each month grows over the life of the loan, a fixed-rate payment doesn't rise with the market the way rent does, and a home can gain value. Typical rent is up 2.9% over the past year, and a renter faces that increase every lease. The longer you stay and the faster your local home values rise, the better buying looks. For the break-even math where you live, see should you rent or buy right now and cities where renting still beats buying.

Sources

Frequently Asked Questions

Is renting throwing money away?

Not entirely. Rent builds no equity, but most of a new mortgage payment doesn't either. At a 7.40% rate on a typical home, about 89% of the first year's mortgage payments go to interest, and taxes, insurance, and repairs come on top.

How much equity do you build in the first year of a mortgage?

Not much at today's rates. On a $366,900 home with 10% down at 7.40%, the first year's payments total about $27,436, and only about $3,104 of that pays down the loan. After five years, about $18,086 is paid off.

When does renting make more sense than buying?

Renting tends to make sense if you might move within a few years, want to keep your savings liquid, or live where rent is far below a mortgage payment. Zillow found typical rent about $1,066 a month below a new buyer's payment nationally.

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Henry Jo
Written by
Henry Jo
Housing Analyst

Henry Jo is a housing analyst covering rent data, affordability, city comparisons, and much more. He started following rental data while apartment hunting in two cities at once, and he lives in the Pacific Northwest.

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Equity? You're not throwing money away by renting. Here's the math