Rent vs mortgage payment: the real comparison

Rent vs mortgage payment: why the monthly amount alone is misleading

Putting 950 € of rent next to a 1,050 € mortgage payment looks straightforward: renting is cheaper. In reality, the true rent vs mortgage comparison depends heavily on two key parameters in our buy or rent simulator:

• annual_rent_increase (augmentation_annuelle_loyer in the FR version)
• loan_rate (taux_pret, currently around 3.6 % in 2024)

Without these two inputs, any buy or rent discussion is distorted. Rent looks stable in year one, but often rises each year with the rent index. A fixed-rate mortgage payment, on the other hand, usually stays the same for 20–25 years.

What follows is not personalized financial advice, but a data-driven look at the rent vs mortgage payment comparison. For numbers tailored to your case, use our simulator: Simulate your situation on buy-or-rent.net.

1. How does rent evolve over 20 years? The role of annual_rent_increase

In many European markets, including France, rents are revised annually based on an index. Over the last decade, yearly increases have often been around 1.5–3 %. In our buy or rent comparisons, we use a key setting: annual_rent_increase.

Example 1: 900 € rent with 2 % annual increase

Assumptions:

• Initial rent: 900 € / month
• annual_rent_increase: 2 % / year
• Horizon: 20 years

After 10 years:

• Monthly rent ≈ 900 × (1.02)¹⁰ ≈ 1,096 €
• +196 € / month vs year one

After 20 years:

• Monthly rent ≈ 900 × (1.02)²⁰ ≈ 1,335 €
• +435 € / month vs year one

Total rent paid over 20 years (approximate):

• Using a geometric series, ≈ 266,000 €

A naive “no increase” calculation (900 × 12 × 20) would give 216,000 €. That 2 % annual_rent_increase adds roughly 50,000 € over 20 years.

Example 2: 1,200 € rent with 3 % annual increase

Assumptions:

• Initial rent: 1,200 € / month
• annual_rent_increase: 3 % / year
• Horizon: 20 years

After 10 years:

• Monthly rent ≈ 1,200 × (1.03)¹⁰ ≈ 1,612 €

After 20 years:

• Monthly rent ≈ 1,200 × (1.03)²⁰ ≈ 2,164 €

Cumulative rent over 20 years:

• ≈ 402,000 €, vs 288,000 € with no increase

Conclusion: in any serious rent vs mortgage analysis, ignoring annual_rent_increase means heavily underestimating the long‑term cost of renting.

2. Mortgage payment: the impact of a 3.6 % loan_rate

On the ownership side, the visible cost is the monthly payment, driven by:

• purchase price
• your down payment
• loan term (20, 25 years…)
• the loan_rate (around 3.6 % in today’s market)

Unlike rent, a fixed-rate mortgage payment generally does not change over time (ignoring small variations in insurance or specific modulation clauses). This completely changes the buy or rent comparison.

Example 3: buying with a payment close to current rent

Assumptions:

• Purchase price: 250,000 € (existing property)
• Down payment: 25,000 € (10 %)
• Loan amount: 225,000 €
• loan_rate: 3.6 % (excluding insurance)
• Term: 25 years (300 months)

Monthly payment (excluding insurance) ≈ 1,140 €. Add borrower insurance at 0.30 % per year on initial capital:

• Insurance ≈ 225,000 × 0.30 % / 12 ≈ 56 € / month
• Total payment ≈ 1,196 €

Now compare with a tenant paying 1,000 € initially, with 2 % annual_rent_increase:

• Year 1: 1,000 €
• Year 10: ≈ 1,219 €
• Year 20: ≈ 1,486 €

Over 20 years, the owner pays roughly 1,196 € every month, while the tenant starts lower but ends up paying much more. This is where rent vs mortgage payment becomes interesting.

3. Numerical comparison: rent vs mortgage over 20 years

Scenario A: renting

Assumptions:

• Initial rent: 1,000 € / month
• annual_rent_increase: 2 % / year
• Horizon: 20 years
• No property tax, major repairs paid by the landlord

Total rent over 20 years:

• ≈ 295,000 €

Scenario B: buying

We reuse the 250,000 € purchase with a 225,000 € loan at a loan_rate of 3.6 % over 25 years. To compare over 20 years, we look at the first 20 years of payments.

• Total monthly payment (loan + insurance): ≈ 1,196 €
• Over 20 years: 1,196 × 12 × 20 ≈ 287,000 €

This amount includes both principal repayment (which builds equity) and interest (the real borrowing cost).

Over 20 years at 3.6 % loan_rate, you roughly pay:

• ≈ 160,000 € in principal
• ≈ 85,000 € in interest
• ≈ 42,000 € in insurance (56 € × 12 × 20)

So the “lost” cost (interest + insurance) is about 127,000 €, while 160,000 € of principal turn into housing equity.

On top of that, buyers face:

• Notary / closing costs (7–8 % on existing homes): around 18,000–20,000 €
• Property tax: e.g. ~1,200 € / year, often revalued annually
• Maintenance and renovations: commonly 1–2 % of property value per year over the long run

So the buy or rent decision is not just about rent vs mortgage payment; you also need to factor in:

• future rent hikes via annual_rent_increase
• borrowing cost via loan_rate
• extra ownership costs

4. Rent vs mortgage: how annual_rent_increase hits your budget

Back to our tenant example:

• Year 1: 1,000 € rent
• Year 10: ≈ 1,219 €
• Year 20: ≈ 1,486 €

If income doesn’t rise as fast, rent takes an increasing share of the budget. The owner with a fixed 1,196 € mortgage payment sees a stable nominal effort, and a shrinking relative effort if income grows.

This is one of the key insights of a serious rent vs mortgage comparison:

• Rent: variable, indexed through annual_rent_increase
• Mortgage payment: fixed when loan_rate is fixed

Over 15–25 years, the difference in purchasing power can be huge, especially in an inflationary environment.

5. What if you invest the rent–mortgage gap? The role of investment return

A classic argument in the buy or rent debate is: “If renting is cheaper than owning, I invest the difference.” That’s where the simulator’s investment_rate parameter comes in (return from ETFs, funds, savings accounts, etc.).

Example 4: rent 900 € or buy with a 1,200 € mortgage

Assumptions:

• Initial rent: 900 € / month, annual_rent_increase: 2 %
• Mortgage payment: 1,200 € / month (loan + insurance)
• Initial gap: 300 € / month
• Investing this 300 € at 4 % annual return

If the tenant actually invests 300 € every month at 4 % for 20 years, the resulting portfolio could exceed 100,000 € (depending on exact assumptions). In parallel, the owner builds equity by repaying principal.

The better option in the buy or rent decision then depends on:

• your real discipline to invest the gap every month
• the effective investment_rate you achieve
• future property price trends

Our simulator models exactly this, combining annual_rent_increase, loan_rate and your assumed investment_rate.

6. Sensitivity to loan_rate: what if mortgage rates move?

The current loan_rate around 3.6 % is not fixed forever. A 1‑point change can significantly alter monthly payments and the rent vs mortgage balance.

Example 5: same property, two different loan_rate values

Property price 250,000 €, loan 225,000 € over 25 years:

• At 2.5 %: monthly payment (excl. insurance) ≈ 1,011 €
• At 3.6 %: monthly payment (excl. insurance) ≈ 1,140 €

Difference: about 129 € / month, or more than 38,000 € over 25 years (before insurance). When rates are low, mortgage payments often come close to rent levels. When rates rise, the gap widens.

In a high loan_rate environment, renting may look more attractive in the short term, especially if current rents are reasonable and annual_rent_increase is modest. When rates fall, mortgage payments become much more competitive.

7. What the simulator actually does in a buy or rent analysis

Our tool doesn’t just compare today’s rent to today’s mortgage payment. It projects over time:

• rent evolution using annual_rent_increase
• loan amortization based on your loan_rate and term
• equity built in the property
• potential invested savings if you stay a tenant

Some concrete scenarios you can test:

• What if annual_rent_increase is 1 % vs 3 %?
• How does a loan_rate of 3.6 % vs 4.5 % change the outcome?
• At what rent level does the mortgage payment become more attractive over 20 years?

Instead of a static “rent vs mortgage payment” snapshot, the simulator shows you the dynamic picture over 10, 15 or 25 years.

8. Buy or rent: what this comparison doesn’t capture

Even with a detailed rent vs mortgage comparison, the buy or rent decision also depends on non‑financial factors:

• job mobility and life plans (how long you expect to stay)
• risk tolerance (large mortgage vs full flexibility)
• time horizon (buying for 4 years vs 20 years is not the same game)

From a purely financial angle, the two parameters you must never ignore are:

• annual_rent_increase: the true driver of long‑term renting costs
• loan_rate: the core driver of borrowing costs

This article is not personalized financial advice. Your income, savings capacity, city, tax situation and investment behavior can fully change the result of any buy or rent calculation.

Conclusion: rent vs mortgage is mainly a long‑term story

In the short run, rent is often lower than a mortgage payment, especially with a loan_rate around 3.6 %. Over 15–25 years, however, annual_rent_increase and fixed mortgage payments can flip the result.

A serious rent vs mortgage payment comparison must account for:

• expected rent growth via annual_rent_increase
• mortgage stability and cost via loan_rate
• ownership extras (closing costs, property tax, maintenance)
• returns on invested savings if you remain a tenant

The right answer to the buy or rent question always depends on your own profile and assumptions. To see the numbers for your specific case, adjust annual_rent_increase, loan_rate and the other parameters in our simulator: Simulate your situation on buy-or-rent.net.