I tried to do an exercise. See if you can follow. I can be wrong. But if you can follow (point out my mistakes), then you really understand how to calculate amortization and FV of money.

Assume there is a house worth $600k. If you can get a 30-year mortgage rate = 6.15%, How much do you have to pay every month?

Let’s say you are in 25% tax bracket, the following is what I got

Because interest payment is deductable, in the early years, you effectively pay less.

Ok, what if I don’t buy but rent?

Assume the price-rent ratio is 30, the rent will be $1667 a month. Approximately, I can save ~$1500 every month for investment.

Assume the inflation is 2.65% (here I try to assume inflation is 3.5% lower than the 30-year fix mortgage rate, which I observed from some graphs). The house will worth $1.31M after 30 years.

What should be the return rate of the $1500 I saved every month so that I can buy the house 30 years later? It has to be 5% above the inflation rate (because the rent is also increasing at 2.65%, so don’t forget to add this back). Therefore, I have to be able to invest my money with 7.65% so that it becomes $1.3M 30 years later.

So, in conclusion, in this approximated scenario, I have to be able to invest the my money with 5% more than inflation rate in order to justify renting instead of buying the house.

Of course, renting has many advantages: 1) don’t have to pay property tax 2) no maintenance cost 3) no insurance required. And more importantly, freedom! These are not taken into account yet.

Just a very simplified case. Some numbers are guessed only and didn’t involve detail calculations.