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Renting isn't throwing money away

November 1, 2026

Last week wrapped up the Retirement Series and pointed at the question I hear most from people in their 20s and 30s. It is whether the money going out the door in rent every month is wasted, and whether they should be hurrying to buy before it gets any harder.

Rent isn't wasted money, but the saying sticks because people line their rent up against a mortgage payment and assume only one of the two disappears. A big share of the mortgage payment disappears too, and most people never look at how much.

Where a mortgage payment goes in the first year

Say you buy a $500,000 home with $100,000 down and take a $400,000 mortgage at 4.5% over 25 years. The payment works out to about $2,214 per month, so you send the lender roughly $26,600 over the first twelve months. About $17,650 of that is interest and about $8,900 pays down the loan, which is money moving out of your chequing account and into your own equity.

Interest is the cost of borrowing and it is gone in the same way rent is gone. In the first year it is twice the size of the part you keep. That ratio flips slowly over 25 years, but the early years of a mortgage are mostly interest, and the early years are where people are standing when they ask me this question.

Where the first year of mortgage payments goes Illustration: on a $400,000 mortgage at 4.5% over 25 years, about $26,600 is paid in the first year. About $17,650 is interest, which is gone like rent, and about $8,900 pays down the loan and becomes the owner's equity. Where the first year of payments goes $400,000 mortgage, 4.5%, 25 years: about $26,600 paid in year one $17,650 InterestGone, the same way rent is gone $8,900 PrincipalPays down the loan, becomes your equity In year one, interest is about twice the part you keep

Owning also comes with bills a renter never sees, and property tax is usually the biggest, running near 1% of the value per year in much of the country. Maintenance is generally put at 1% to 1.5%, which feels like zero for three years and then the roof goes. Insurance adds a few hundred more. All three are unrecoverable, meaning they leave with no residual value, the same as rent does.

What owning costs before any principal gets paid

The comparison that works is unrecoverable cost against unrecoverable cost. All of your rent is unrecoverable. For an owner it is three things: property tax, maintenance, and the cost of capital, which is the mortgage interest on the part you borrowed plus the return you gave up on the down payment by putting it into a house rather than into stocks.

The familiar version of this is the 5% rule: about 1% property tax, about 1% maintenance, and about 3% cost of capital, which is $25,000 per year on a $500,000 home. That 3% was set when mortgages cost about 3%, and they do not right now. The Big Six banks are discounting five-year fixed money at around 5%, the sharpest insured rates are near 4.4%, and the 4.5% in the example above is a fair conventional rate today.

Run the same screen at 4.5% and the cost of capital comes out at 4.3% rather than 3%: 4.5% on the 80% you borrowed, and about 3.6% on the 20% you put down, that second figure being the gap between what stocks are expected to return and what housing is expected to return. Add the 2% for tax and maintenance and owning a $500,000 home costs about 6.3% per year, or roughly $31,600, or $2,633 per month before a dollar of the loan is paid off.

The number to hold your rent against is that $2,633, not the $2,214 mortgage payment. If you can rent the same house for meaningfully less, renting and putting the difference into your TFSA or RRSP is often the stronger move, and if rent sits above it, buying looks better on cost alone.

The number to compare your rent against Illustration for a $500,000 home: the mortgage payment is about $2,214 per month, but the owner's unrecoverable cost is about $2,633 per month, made up of about $417 property tax, $417 maintenance and $1,800 cost of capital. The number to compare your rent against $500,000 home, monthly $0$1,000$2,000 $2,214 Mortgage payment Part of it builds equity Property tax, 1% Maintenance, 1% Cost of capital, 4.3% $2,633 Owner's unrecoverable cost Gone, like rent. Compare rent to this.

The screen will not settle the question on its own, because it says nothing about what prices do or how the tax treatment lands, and it assumes there is a comparable place to rent, which in some markets there is not. It tells you roughly where you are standing. Then you run your own numbers.

Where renters usually fall behind

A renter who invests the difference tends to end up in a similar place to an owner, and the research is fairly consistent on that. The trouble is how much work "invests the difference" is doing in that sentence. Most renters do not do it. The money lands in the chequing account, the month absorbs it, and twenty years on there is no house and no portfolio either.

A mortgage takes that option away, and that is most of its value. The $8,900 of principal in year one grows every year as the interest share falls, and at the end of 25 years the $400,000 is repaid and the house is yours. None of that depends on anyone feeling motivated in a given month. It is the most effective forced-savings program most people will ever be enrolled in, and it is the strongest argument owning has.

The renter's version of that has to be built by hand. $400 per month for 25 years at 6% comes to about $277,000. That is what a renter's discipline is worth, and it is why I think this question is settled less by the math than by whether the transfer is automatic. If you are renting, set that up first and have the argument about houses afterward.

What $400 per month becomes over 25 years Illustration: investing $400 per month for 25 years at an assumed 6% per year grows to about $277,000, from $120,000 of contributions. A smooth assumed return is used for simplicity; real returns vary year to year. What $400 per month becomes over 25 years $0$100k$200k$300k 0510152025Years Assumes 6% per year, invested automatically $120,000 put in About $277,000

Where buying comes out ahead

Once your TFSA and RRSP room is full, a home starts to look better on tax alone. A principal residence is generally exempt from capital gains tax when you sell it, and nothing else in Canada lets growth come out untaxed with no contribution limit sitting over it. Someone with maxed registered accounts and money piling into a taxable account is in a different position than someone carrying $7,000 of unused TFSA room for 2026.

People also behave better with a house than with a portfolio. Nobody sells their home in March because the news is bad. They sell funds in March because the news is bad, and the gap between what markets return and what investors earn has a lot of that in it.

Then there are the reasons that are not financial, which are usually the ones that decide it. Staying put. Painting a wall without asking. Not being told in February that the place is being sold.

Why I rent

I rent, and I expect to for about five more years. My wife is in vet school and we do not know yet where we land when she finishes, so flexibility is worth more to us right now than equity would be. The only reason I would buy today is that last one, to stop moving and make a place ours. That is a completely good reason to buy a house. Wanting to stay in one place is worth paying for, and it does not need a spreadsheet to justify it.

We are saving toward it in our FHSAs, and if there is any chance you buy a first home, open one. I do not say that lightly. A deduction on the way in and a tax-free withdrawal for a qualifying home is the best combination available in any Canadian account, and I went through how it sits alongside the TFSA and RRSP in the accounts post.

Run it on your own numbers

The rent vs buy calculator on the site does the full comparison. It grows the buyer's net worth with appreciation and subtracts the mortgage balance and the selling costs, then sets that against the renter's portfolio if they invest the monthly difference. Put in the rent you pay and the price of a place you would buy, and it will tell you which side is ahead over your horizon and by how much.

Move the investment return by one percentage point and watch the answer swing. That sensitivity is most of what the exercise has to teach, and it is a decent argument against feeling certain in either direction.

What's next

The next few posts are about the first house, starting with the FHSA and how the Home Buyers' Plan stacks on top of it. That one is coming soon.

This is general financial education, not individual advice. The figures above are illustrations, not quotes or forecasts, and mortgage rates, property taxes and contribution limits change over time. For advice specific to your situation, talk to a qualified professional.

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