Housing as a financial decision

A typical online calculator compares mortgage payment to rent and calls it a day. That is wrong in five places. (1) The down payment has an opportunity cost — invested in the market at 7%, that's real money. (2) Owner pays property tax, maintenance, insurance — typically 2–3% of the home value per year, every year. (3) Rent grows; mortgage payment is fixed in nominal terms — owners win this comparison more each year. (4) Selling costs 5–7% of home value; renting has none. (5) The mortgage itself has a value when rates move. The widget below models all five honestly.

Try the "Locked in at 3%" preset. A homeowner who borrowed at 3% in 2021 now faces a market rate of 7%. The embedded value readout shows that mortgage is worth roughly $80–100k as an asset. If they sell to move, they hand the bank back a loan and replace it with one at 7% — a real, calculable loss of that $80–100k, before they've moved a box. This is why existing-home sales hit a 30-year low in 2024, even though jobs and demographics implied more moves. The math told everyone the same thing.

Try the "Short stay (4y)" preset. Even with strong appreciation, owning loses on horizons under 5 years because: (a) the first years of a mortgage are almost all interest — you build little equity, and (b) the 6% selling cost is a fixed haircut on the way out. The widely-cited "rent if you'll be there less than 5 years" rule is not arbitrary; it's where amortization and selling costs net to roughly zero on average. Move the "Years held" slider in either direction to see the rule emerge.

Toggle between "Locked in at 3%" and "Buying at 7%" with the same property. The 2021 buyer wins by hundreds of thousands over the same horizon. This is not because they're cleverer — it's because they bought a much cheaper loan. The same house, the same job, the same family; only the loan rate differs. Time the loan, not the house: that is the actual lesson of 2020–23.

Try the "HCOL renter" preset. In coastal cities where the rent-to-price ratio is low (around 3–4% annually rather than 6%+), renting and investing the difference often beats buying over any reasonable horizon. The math is unsentimental. People stay in expensive coastal cities anyway because they value other things — but they should at least know they're paying for those other things, not making a financial mistake by not "getting on the ladder."

If you bought at 7%, you have a built-in option: refinance when rates fall. That option has measurable value (Black-Scholes style) — typically worth a few percent of the loan balance. So the buyer-at-7% is not stuck at 7%; they're at 7% with the right to drop to whatever the next trough is. Refinance windows reopen roughly every 3–5 years on the historical rate cycle. The buyer-at-3% has no equivalent option going the other way — and good thing too, because they don't need one.