How the loan rate changes your buy or rent simulation

Why the loan rate is the core of your buy or rent simulation

In any serious buy or rent simulation, the most sensitive parameter is usually the loan rate. For the same property price and mortgage term, a 1 percentage point difference can mean tens of thousands of euros in extra interest over 20–25 years.

In 2024, typical mortgage rates are around 3.6% for good profiles, versus below 1.5% a few years ago. Ignoring this shift in a real estate simulator completely distorts the comparison between buying and renting.

This article is not personalized financial advice. The goal is to show, with numbers, how the loan rate parameter (taux_pret) in a simulator changes the outcome of your buy or rent decision. For a case-specific analysis, use a detailed simulator and, if needed, talk to a professional.

1. How the loan rate enters a buy or rent simulator

In a property simulator, the loan rate affects several key elements:

• Monthly payment: the higher the rate, the higher the payment for the same principal and term.
• Total interest cost: over 20–25 years, even a small rate increase can dramatically raise total interest paid.
• Borrowing capacity: a higher rate reduces how much you can borrow while staying under a 35% debt-to-income ratio.
• Buy vs rent arbitrage: if credit is expensive, remaining a renter and investing your savings at a decent investment rate can become more attractive.

The buy or rent simulator uses this taux_pret in the standard amortizing loan formula. The monthly payment (excluding insurance) is:

Payment = P × [i / (1 − (1 + i)⁻ⁿ)]

where:

• P = principal borrowed
• i = monthly rate (annual rate / 12)
• n = total number of monthly payments

A small change in i instantly modifies the payment and therefore the gap between the buying and renting scenarios.

2. Base example: same property, two different loan rates

Assume you buy a €300,000 property in the existing stock, financed over 25 years, with no down payment to keep things simple. We focus only on the loan rate parameter; all other inputs (notary fees, property tax, etc.) remain identical in the simulator.

2.1 Common assumptions

• Property price: €300,000
• Mortgage term: 25 years (300 months)
• Loan type: amortizing, fixed monthly payments
• Borrower insurance: ignored in this first calculation (but should be added in a real simulation)

2.2 Scenario A: 2.0% loan rate

• Annual rate: 2.0% → monthly rate i ≈ 0.001667
• Principal: €300,000

Monthly payment (excl. insurance) ≈ €1,270

Total interest over 25 years:

€1,270 × 300 months − €300,000 ≈ €81,000

2.3 Scenario B: 3.6% loan rate

• Annual rate: 3.6% → monthly rate i ≈ 0.003
• Principal: €300,000

Monthly payment (excl. insurance) ≈ €1,520

Total interest over 25 years:

€1,520 × 300 months − €300,000 ≈ €156,000

2.4 Direct impact in the simulator

• +€250 per month in payments between 2.0% and 3.6%
• +€75,000 in total interest over the life of the loan

In a buy or rent simulation, those extra €250 per month are critical: the simulator compares this extra cost to what you could do with that money if you stayed a renter (for example, investing it at a 3–5% investment rate).

3. Buy or rent: numerical comparison with the loan rate

To really see the impact of the loan rate, you need to compare two scenarios in a real estate simulator:

• Scenario A: you buy with a given taux_pret.
• Scenario B: you keep renting and invest the savings.

3.1 Comparison assumptions

Let’s take a simple case:

• Current rent: €1,100/month
• Annual rent increase (IRL index): 2%/year
• Investment rate (ETF / savings): 4%/year
• Annual inflation: 2.5%/year
• Simulation horizon: 25 years

We compare:

• Buying: mortgage payment (driven by the loan rate), property tax, running costs, maintenance.
• Renting: rent increasing with IRL, and capital invested at the investment rate thanks to the absence of mortgage.

3.2 Case 1: 2.0% loan rate

With a €1,270 monthly payment:

• Extra cost vs rent in year one: €1,270 − €1,100 = €170/month.
• Add property tax (say €1,200/year, so €100/month) and maintenance (about 1% of price per year, i.e. €3,000/year = €250/month). Total housing cost when buying in year one ≈ €1,270 + €100 + €250 = €1,620/month.
• As a renter, year-one housing cost: €1,100/month, with no property tax or major works.

Difference in year-one housing cost: €1,620 − €1,100 = €520/month in favour of renting. In the simulator, those €520 can be assumed to be invested monthly at 4%/year.

But in the buying scenario, you are repaying principal each month: after 25 years, you own a property that may have appreciated in value (for example +1.5–2%/year, depending on the local market).

3.3 Case 2: 3.6% loan rate

With a €1,520 monthly payment:

• Extra cost vs rent in year one: €1,520 − €1,100 = €420/month.
• Adding the same €100 property tax and €250 maintenance, total housing cost when buying in year one ≈ €1,520 + €100 + €250 = €1,870/month.

Difference in year-one housing cost: €1,870 − €1,100 = €770/month in favour of renting, i.e. €250/month more than with a 2.0% rate.

In a buy or rent simulator, this extra €250/month is invested at the chosen investment rate. Over 25 years, €250/month invested at 4%/year grows to roughly €120,000 of extra capital on the renter’s side.

Result: the higher the taux_pret, the more the simulator tends to favour the rent + invest scenario, all else equal. But this is never automatic: it also depends on property price trends, property tax revaluation, how long you plan to stay, and more.

4. Loan rate, mortgage term and total cost

The loan rate should never be viewed in isolation. In a good real estate simulator, it’s always linked to the loan term. Cutting the term often lowers the rate, but raises the monthly payment, which again changes the buy or rent comparison.

4.1 Example: 20 years vs 25 years

For the same €300,000 property:

• Scenario: 20 years at 3.4%
• Scenario: 25 years at 3.6%

20-year scenario (240 months, 3.4%)

• Monthly payment ≈ €1,740
• Total interest ≈ €1,740 × 240 − €300,000 ≈ €117,600

25-year scenario (300 months, 3.6%)

• Monthly payment ≈ €1,520
• Total interest ≈ €156,000

By extending the term and accepting a slightly higher rate, you cut your monthly payment by €220, but pay about €38,000 more in interest.

In a buy or rent simulation, this changes two things:

• Your monthly cash-flow effort (and therefore how much you can invest alongside the mortgage).
• The total cost of the loan, which affects the real return of the property investment.

5. Loan rate, borrower insurance and global cost

In practice, the loan rate is not the only rate that matters. Borrower insurance often adds 0.25–0.45% of the outstanding principal per year. A precise real estate simulator should separate:

• Nominal mortgage rate (the taux_pret in the simulation).
• Insurance rate (taux_assurance).
• Global APR (TAEG), which includes interest, insurance and some fees.

Quick example for €300,000 over 25 years:

• Loan rate (taux_pret): 3.6%
• Insurance rate: 0.30%

Approximate insurance cost: €300,000 × 0.30% × 25 years = €22,500 (rough estimate; real calculations may differ). Total cost (interest + insurance) is then around 156,000 + 22,500 = €178,500.

In a buy or rent logic, every euro paid in interest or insurance is a euro you cannot invest at your chosen investment rate. That’s why a good simulator must account for the loan rate and, ideally, borrower insurance as well.

6. Loan rate, market conditions and inflation

The loan rate does not move independently from the economy. It’s tied to inflation and to the housing market.

• Annual inflation: around 2–4% in recent years, it erodes the real value of your fixed mortgage payments over time.
• Property prices: in some cities they are flat or down; in others they are still rising.

If inflation is 3% and your loan rate is 3.6%, your real rate (inflation-adjusted) is relatively low. In a buy or rent simulator, this can make buying more attractive in the long run, because you repay the loan with “cheaper” money, while rents also tend to follow inflation through the IRL index.

On the other hand, if investment returns (ETFs, bonds, etc.) significantly exceed your taux_pret, the rent + invest strategy can come out ahead in the simulation.

7. Using a real estate simulator to test different loan rates

The strength of a buy or rent simulator like buy-or-rent.net is that you can:

• Adjust the loan rate parameter (for example from 3.0% to 4.0%).
• Instantly see the impact on:
• your monthly payments,
• total loan cost,
• the gap vs renting costs,
• the capital you might accumulate if you stay a renter and invest the difference.

In practice, you can:

• Simulate a purchase at 3.6% over 25 years.
• Re-run the simulation at 3.0% (imagining a renegotiation or future rate drop).
• Compare total costs and net wealth at the end of the horizon in each scenario.

This approach lets you understand, with numbers, how the loan rate can tilt your buy or rent decision, instead of relying on gut feeling.

8. Prepayment, rate changes and strategy

Loan rate also interacts with another key parameter: prepayment. In many countries, early repayment penalties are capped at 3% of the remaining principal or six months of interest, whichever is lower.

In a simulator, this means you can test strategies such as:

• Borrowing at today’s rate (around 3.6%),
• Investing some of your savings instead of putting everything as a down payment,
• Prepaying part of the loan later if rates fall or your investments have performed well.

Changing the taux_pret and including possible prepayments helps you see whether buying now and adjusting later, or waiting and renting in the meantime, is more efficient in your specific case.

9. Key takeaways: how loan rate changes your buy or rent result

• A 1% increase in the loan rate can add €50,000–€80,000 of interest on a typical mortgage.
• Higher rates mean higher monthly payments, lower borrowing capacity, and often a stronger case for renting and investing the difference.
• The loan rate must be analysed together with loan term, insurance, inflation and investment returns.
• There is no universal answer to the buy or rent question: it depends on your time horizon, local market, and financial assumptions.

To move from theory to numbers tailored to your situation, the most efficient step is to use a real estate simulator that includes the loan rate parameter, rent indexation, property tax, inflation and investment returns.

This is not personalized financial advice. The examples are simplified and based on general assumptions. To properly assess your case, test different loan rates, loan terms and investment scenarios in a dedicated tool.

Simulate your situation on buy-or-rent.net