Rent or buy? The honest math behind the biggest money decision

"Renting is throwing money away" is one of the most repeated lines in personal finance. It isn't quite true. Both renting and owning have costs you never get back.

The unrecoverable costs of owning

When you own, you don't pay rent, but you do pay:

• Mortgage interest, especially large in the early years
• Property tax
• Maintenance and repairs, often estimated at 1 percent or more of the home's value each year
• Insurance, and condo or association fees if they apply
• Buying and selling costs: legal fees, land transfer taxes and real estate commissions

Add these up. That's the fair number to compare with rent.

The hidden benefit of renting

Renters can invest the money they would have spent on a down payment and on owning costs. If they actually invest it, and don't spend it, they can build wealth too.

When buying tends to make sense

• You plan to stay put for at least five to seven years
• Your income is stable
• You have a down payment and an emergency fund
• Owning costs are similar to renting in your area

When renting tends to make sense

• You may move for work or family
• Prices in your area are very high compared with rents
• You value flexibility and fewer repair bills

A home is a place to live first and an investment second.

Online rent-versus-buy calculators from banks and government consumer sites can help you run your own numbers.