Renting vs Buying in 2025: Why Renting at $2,600/Month Could Beat Buying a $375,000 Home Amid High Mortgage Rates

Zack Sigel is an experienced writer and editor based in New York City. With a background managing editorial teams focused on finance and business at Policygenius and M1 Finance, Zack also contributes to cultural outlets like Hyperallergic and the Los Angeles Review of Books. He holds a bachelor’s degree from New York University’s Tisch School of the Arts.

Key Insights

• In 2024’s housing landscape, elevated mortgage rates and high home prices mean renters should carefully compare monthly rent costs against homeownership expenses before making a decision.
• Mortgage rates have fluctuated significantly, recently returning to around 6.75%, a notable increase from September’s 5.89%.
• Home prices remain high, which can make renting a more appealing and affordable option for many.
• While rental prices have also increased, many U.S. markets are now seeing a softening trend.

After years of rising interest rates, borrowing costs have generally eased—except for mortgages, which remain stubbornly high.

Mortgage rates often mirror broader economic signals rather than the federal funds rate directly. Despite rate cuts by the Federal Reserve, mortgage rates climbed back to previous highs by late 2023, averaging 6.75%, significantly higher than the 5.89% recorded in mid-September.

This volatility has prompted many potential homebuyers to reconsider, with a growing number opting to rent instead of purchasing in the current challenging market.

"During the summer, some buyers benefited from the lowest mortgage rates in 18 months," explains Judy Zhou, a real estate agent with Douglas Elliman in New York, who handles both rentals and sales.

"However, affordability concerns have driven many toward the rental market," Zhou adds, citing a 40% year-over-year increase in new leases in Manhattan and over 213% in Brooklyn as of September.

Recent months have also seen rental prices soften across various U.S. regions.

"Entering November, rents dropped by 7% to 10% from summer peaks, even as mortgage rates climbed since mid-September," Zhou notes.

Renting Could Be More Cost-Effective in 2024

Buying a home traditionally appeals because monthly mortgage payments build equity over time, eventually leading to ownership. Renting, by contrast, is often viewed as paying for shelter without building equity.

However, comparing rent to mortgage payments alone overlooks numerous hidden homeownership costs. Buying a home requires a substantial down payment—typically 20%—which can amount to tens of thousands of dollars upfront, plus closing costs and ongoing expenses.

Ongoing costs include property taxes and homeowners insurance, which have risen sharply in recent years.

"Homeowners nationwide face dramatically higher insurance rates compared to a few years ago," says Pat Howard, a home insurance expert formerly with Policygenius. "Some insurers are withdrawing from high-risk areas, reducing options and driving prices even higher."

These additional costs can total thousands annually beyond the mortgage payment.

When renting, many of these expenses are bundled into the rent, and landlords typically cover repairs and renovations, which can make renting seem more expensive monthly but less of a financial commitment overall.

Remember: Interest and Rent Payments Are Not Recouped

To illustrate, consider choosing between renting a $2,600/month apartment or buying a $375,000 home with a 6.75% mortgage.

Renting totals $31,200 annually, plus approximately $300 for renters insurance and a $1,000 security deposit, bringing the total first-year cost to about $32,500.

Buying requires a $75,000 down payment (20%), with monthly mortgage payments around $1,945 before taxes and insurance. In the first year, about $3,200 goes toward principal, building equity, but roughly $20,100 is paid in interest, which is non-recoverable.

While homeownership builds equity, the high interest costs mean the effective cost difference between renting and buying narrows. Renting avoids the large upfront down payment and the risk of interest costs, costing roughly $12,400 more per year without equity gains.

For those aiming to save for homeownership later, renting may be a smarter short-term financial strategy amid high mortgage rates.

Selling a home after a few years may not generate enough equity to cover the cost of purchasing the next property, especially considering closing costs and the possibility of higher future mortgage rates.

When Is the Right Time to Buy?

The timing for a buyer-friendly market remains uncertain. The 2024 election outcomes have pushed stock and cryptocurrency markets to record highs, while the 10-year Treasury yield has recently increased.

Experts anticipate mortgage rates may decline eventually but expect them to rise before that happens.

Currently, renting is often the most affordable and flexible option. However, waiting indefinitely for perfect market conditions may mean renting for longer than desired.

"Deciding to rent or buy is deeply personal," Zhou advises. "Consider your life goals over the next 5 to 10 years, family plans, career changes, and whether you need immediate housing or can wait through a potentially lengthy homebuying process."

Ultimately, some may value the flexibility of renting, while others prioritize the stability of homeownership despite higher costs.

How Mortgage Rates Are Tracked

The mortgage rate averages referenced come from the Zillow Mortgage API, assuming an 80% loan-to-value ratio (20% down payment) and a credit score between 680 and 739. These rates reflect realistic borrower expectations rather than promotional teaser rates. © Zillow, Inc., 2024. Use subject to Zillow Terms of Use.

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