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When comparing rent vs buy purely on monthly cash outflow over a fixed horizon, perform straightforward arithmetic and then layer on qualitative factors. In the example used earlier, rent is $1,800/month and mortgage (including taxes and insurance) is $2,100/month. Over five years (60 months) multiply each monthly amount by 60: rent totals $1,800 × 60 = $108,000; mortgage totals $2,100 × 60 = $126,000. The mortgage therefore produces $18,000 more in raw cash outflow over those five years. This simple calculation isolates cash flows and helps you see whether higher monthly payments are affordable and whether they might be justified by other benefits — but it omits equity build-up, tax effects, transaction costs, and maintenance obligations, which can materially change the longer-run picture.

To move from raw cash comparison to a fuller decision, add two things: (1) the equity you might accrue by paying down principal and (2) transaction and fixed costs like closing costs and potential sale commissions. For example, part of the mortgage payment reduces loan principal (building equity), and if home values appreciate, that equity can offset some of the higher monthly cash outflow. Conversely, homeowners bear maintenance and sometimes large one-time repair costs that renters typically don’t. Also consider mobility: if you expect to move within a short window, the transaction costs associated with buying and selling can outweigh equity gains. Use the cash comparison as a first step — if the mortgage’s higher monthly cash outflow fits your budget and you plan to stay put or expect price appreciation, buying might make sense; otherwise renting may be preferable for flexibility and lower near-term cash needs.

Did You Also Know...

By Quiz Coins

Retirement accounts commonly impose early-withdrawal penalties to discourage using tax-advantaged savings before retirement.

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