The Cost of Interest: Renting vs. Owning a Home

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Norah Tanner, part of the Houzd Mortgage Team, is back to discuss differences in renting vs buying so you can make an informed decision on whether it’s the right time to buy or not. Let’s take a look.

When deciding between renting and buying a home, most people focus on monthly payments, down payments, or maintenance responsibilities. But there’s another important factor to consider: interest. While renters and homeowners both pay for the right to live in a home, only one of them is actually paying interest, and it makes a big difference over time. So, how does interest affect renters versus homeowners, and what should you consider when weighing the financial impact? Let’s break it down.

Renters: No Interest, But No Equity

As a renter, you don’t pay mortgage interest because you don’t have a mortgage. That may seem like a win, and in the short term, it often feels that way. Renting can be more affordable up front, and you avoid the long-term commitment and debt of a home loan.

However, there’s an important trade-off: your monthly rent payment goes entirely to your landlord, and none of it builds equity or ownership for you. In fact, you’re often helping your landlord pay their mortgage interest while they build wealth with the property you’re renting.

Rent = 100% cost

  • No interest payments

  • No equity or long-term return

  • Rent increases over time

  • No tax benefits

In other words, while you may avoid mortgage interest, you're also missing out on any potential return on your housing expenses.

Homeowners: Paying Interest, But Building Equity

When you buy a home with a mortgage, part of your monthly payment goes toward interest and part goes toward principal (the loan balance). Early in your loan, a larger portion goes to interest. Over time, as the loan gets paid down, more goes toward principal.

So yes, homeowners do pay interest—but it’s paired with equity building, long-term value, and potential tax benefits.

Mortgage Payment = Interest + Principal

  • Interest is front-loaded but decreases over time

  • Equity grows as you pay down principal and home value increases

  • You can benefit from appreciation

  • Mortgage interest may be tax-deductible (consult your tax advisor)

While interest is a real cost, it’s offset by the fact that you’re slowly gaining full ownership of a valuable asset. Plus, once the mortgage is paid off, you live without a housing payment—something renters don’t typically experience.

Example: Comparing 10 Years of Renting vs. Owning

Let’s say you pay $2,000 per month in rent. Over 10 years, you’ve spent $240,000, and you walk away with no equity. Now, suppose you buy a $350,000 home with a 30-year mortgage at 6.5% interest. Your monthly payment (principal and interest only) might be around $2,200. Over 10 years, you’ve spent about $264,000 in payments, but a portion of that went to principal, and your home may have appreciated in value. Even though you paid interest, you still gained:

  • Tens of thousands in home equity

  • Potential price appreciation

  • Tax benefits

  • A step toward full ownership

So, Who "Pays More"?

In the long term, renters may pay more in opportunity cost—the money spent on rent that could have gone toward ownership. Homeowners pay mortgage interest, but they get something in return: equity, appreciation, and financial leverage.

That said, buying a home isn’t always the right move for everyone. If you need flexibility, plan to move within a few years, or don’t have the savings for a down payment and closing costs, renting might make more sense, at least for now.

Final Thoughts

Interest is a cost that comes with borrowing money to buy a home, but it’s not a "wasted" cost. For homeowners, interest is part of a broader financial picture that includes building equity, gaining tax advantages, and investing in a long-term asset.

Renters don’t pay interest, but they also don’t build ownership. Over time, this can be a more expensive path when you consider what you're missing out on in terms of wealth-building. Understanding how interest works—and how it fits into your larger financial goals—can help you make smarter housing decisions, whether you're renting for now or preparing to buy.