Renting isn’t throwing money away. Neither is buying.
The honest version of this question isn’t which payment is smaller — it’s where you end up. A down payment left invested earns something too, and a mortgage payment isn’t all cost. This runs both paths from the same cash on the same day and compares net worth at the end. The single biggest thing it turns on is whether the renter actually saves the difference, so that is a switch rather than a hidden assumption.
Your situation
$1,200,000
20%
6.5%
None
Paid on top of the mortgage payment. Shortens the loan, cuts total interest — and shrinks the deduction along with it.
4.0%/yr
What the home gains each year. Property tax does not follow this — Prop 13 caps assessed value at 2%.
$5,500/mo
What a comparable home rents for — not what you pay now.
3.0%/yr
Compounds every year you keep renting.
If they rent, the monthly difference is…
7.0%/yr
Applies to the down payment either way, and to the monthly difference when it is invested.
7 years
The single biggest lever on this answer.
$250,000
Filing status
More assumptions — costs and returns
1.15%
$2,400/yr
$0/mo
1.0%/yr
2.0%
6.0%
Difference in net worth
$0
Break-even
OwningRenting & investing
Each month
To own$0
Tax savings $0
Your cost to own$0
To rent$0
more than renting$0
After 7 years— if you sold, after costs and tax
If you buy$0
If you rent$0
How these are worked out
Buying
Cash in at closing$0
Down payment$0
Closing costs$0
Home value at the end$0
Loan balance remaining$0
Equity$0
Renting
Down payment & closing, invested instead$0
Monthly savings added$0
Investment growth$0
Investment balance$0
Over the whole period
Total rent paid$0
Total mortgage interest paid$0
No tax deduction at these numbers. Interest plus capped property tax lands under the standard deduction, so itemising wouldn’t beat simply taking the standard. That is the normal outcome at this loan size — and the opposite of what most buyers are told to expect.
Prop 13 is doing real work here. The house is assumed to appreciate faster than the 2% cap on assessed value, so property tax falls further behind market value every year you hold. A calculator that taxes you on current value would overstate the cost of owning by roughly 1.5% of the gap, compounding.
The monthly difference is being spent, not saved. On this setting renting builds nothing beyond the original cash, so owning wins by a wide margin almost regardless of the other numbers. That is a fair description of many households — but it is a statement about spending habits, not about property.
The loan pays off in year 0. After that there is no payment and no interest deduction, and the monthly cost of owning drops to taxes, insurance and upkeep.
That is a short hold. Buying and selling costs land almost entirely in the first few years, and they do not amortise away. Under about five years, renting wins more often than not — which is a legitimate answer, not a failure of the plan.
Estimates only · no credit pull · nothing is sent anywhere
What this does and doesn’t include
Both paths start from the same cash. When the difference is set to be invested, whichever side pays less each month puts the gap away at the assumed return; when it is set to be spent, neither does, and the down payment alone keeps growing. The comparison is net worth rather than payments either way. Owning assumes a sale at the end, after selling costs and the loan payoff. Renting assumes capital gains tax on portfolio growth. Property tax follows California’s Prop 13 cap on assessed value rather than tracking market value, which most national calculators get wrong here. What it deliberately leaves out. The loan is assumed to run at the same rate for the whole period — no refinance, no rate-and-term change, no cash-out. In practice most owners refinance at least once, and a lower rate would improve the owning side against everything shown here. Rent is assumed to rise every year with no gaps, no moves and no concessions. Neither side accounts for a job change, a move out of the area, or a period of vacancy. This is an educational estimate built on 2026 federal figures, not tax advice — confirm anything you rely on with a CPA.
