Renting or buying with a mortgage? What to calculate first

“Rent is money down the drain” is the most dangerous cliché in financial decisions. Sometimes it’s true, sometimes not. Here’s how to look at it calmly.

The right question

You’re not comparing the instalment with the rent. You’re comparing:

Cost of renting: the annual rent, plus the opportunity cost of the deposit you won’t put down (that money can be invested).

Cost of owning: loan interest (the principal counts as saving), property tax (ENFIA), insurance premiums, maintenance (budget ~1% of value a year), building charges, and buying/selling costs (notary, tax, agent fees: easily 8–10% in total).

If you plan to stay in the property for less than 5–7 years, transaction costs often make renting cheaper. Above that, the balance tilts towards buying, and after the loan is repaid, the gap becomes large.

Flexibility has value

A 25-year loan ties you to a city, a neighbourhood and a level of monthly obligation. If your career is in a mobile phase, or your income is unstable, the flexibility of renting can be worth the extra cost.

The instalment rule

As a general principle, the mortgage instalment (together with other loan obligations) should not exceed 35% of the household’s net monthly income. Above that, every surprise (an illness, a spell of unemployment) becomes a crisis.

Insurance makes the loan safe

Two policies are essential (and the bank requires them):

• Fire & earthquake insurance for the property, at the rebuild cost.
• Life insurance equal to the outstanding loan balance, so that if the worst happens, the loan is cleared and the family keeps the home, with no instalment.

Don’t let the bank automatically pick the policy for you. Terms, cost and portability differ, and a properly structured life policy can stay with you even after the loan is repaid.

Both can be right

There’s no universally “right” answer. There’s the answer that fits your horizon, the stability of your income, and what you want to do with the rest of your money.