Why Your $5,000 Mortgage Isn’t Really $5,000 (And What to Compare to Rent Instead)
Most people compare renting vs. buying the wrong way: they look only at the monthly payment. But the better comparison is your net cost after equity, tax benefits, and appreciation.
Quick note: This article is educational and uses a simplified example. I’m not a CPA and this isn’t tax advice. Your numbers will vary based on rates, filing status, deductions, local taxes, HOA, insurance, maintenance, and the specific home.
The big idea: a mortgage payment isn’t the same as your cost
A $5,000 mortgage payment can feel like you’re spending $5,000 a month—full stop.
But unlike rent, a mortgage payment often includes:
Interest (a cost)
Principal paydown (forced savings that becomes equity)
Potential tax benefits (depending on your situation)
Appreciation (wealth building that may accrue over time)
That’s why comparing “rent vs. payment” is like comparing the sticker price of a Tesla to the gas bill of a Honda—it misses what’s really happening underneath.
A simple example: a $1,000,000 home (the principles apply at any price)
Let’s walk through a real-world style example:
Purchase price: $1,000,000
Down payment: 20%
Interest rate: ~6.5% (example)
1) Your payment includes both interest and principal
In the early years of a mortgage, a bigger share of your payment is interest—but some of it reduces your loan balance.
In this example, roughly:
About $3,900/month goes to interest (cost)
About $650/month goes to principal (equity)
That principal portion isn’t “gone”—it’s building ownership.
Why this matters:
With rent, 100% is gone forever.
With a mortgage, a portion is coming back to you as equity.
The overlooked factor: tax benefits (for some homeowners)
Many homeowners can deduct mortgage interest and property taxes if they itemize.
In the example:
First-year interest: ~$46,000
Property taxes: ~$11,000
Potential itemized deductions from those: ~$57,000
If you were previously taking the standard deduction (example mentioned: ~$29,000 for a married couple), then buying could increase deductions by about $27,000.
At an illustrative effective tax rate (example used: ~31% combined), that’s about:
$8,500/year in potential tax savings
≈ $708/month
Important: Tax rules vary and can change. Limits (like caps on state/local tax deductions) may apply. Always confirm with your CPA.
Two wealth builders most people don’t “feel” month-to-month
1) Principal paydown (equity you build automatically)
Using the same example, principal paydown might start around ~$650–$700/month in year one and increase over time.
2) Appreciation (equity growth from market value)
Even at a conservative 3% annual appreciation, a $1,000,000 home could gain about:
~$30,000/year (roughly)
≈ $2,500/month
Together, these are powerful:
Your debt decreases
Your home value increases
That’s why homeowners often build wealth in the background while living life.
The better comparison: your net cost vs. rent
Here’s the lens to use:
Start with your all-in monthly housing payment (principal + interest + property taxes, plus insurance/HOA if applicable).
Subtract estimated monthly tax benefit (if itemizing applies to you).
Subtract equity building from principal paydown and (potential) appreciation.
What’s left is your net cost of owning—the number that’s fair to compare to rent.
Example conclusion (as shown in the video)
In the example walkthrough:
All-in payment (with property taxes): about $5,488/month
Less estimated tax benefit: about $708/month
Less wealth building (principal + appreciation): around $2,900/month
That produces a net cost around $1,800–$2,000/month (ballpark).
Translation:
Don’t compare rent to the mortgage payment.
Compare rent to the net cost.
So… should you rent or buy?
A simple rule of thumb:
If you can rent a truly comparable home for less than your net cost and reliably invest the difference, renting might be the smarter move.
If comparable rent is higher than your net cost, buying can be mathematically attractive (assuming you’re financially ready and plan to stay long enough).
But your best decision depends on:
How long you plan to stay
Your down payment and cash reserves
Your tax situation
Your risk tolerance
HOA/insurance/maintenance costs
Local market conditions
Want your personal numbers run—no pressure, just clarity
At The Whipple Group, we run these calculations with clients using a spreadsheet tailored to your purchase price, rate, down payment, taxes, and rent alternatives.
If you’re deciding whether buying makes sense right now, let’s talk. We’ll walk through the math together.
Disclaimer: Real estate involves risk. Appreciation is not guaranteed. This article is for education and does not replace tax, legal, or financial advice.
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