What owners pay and don’t get back
Only the part of a home loan repayment that pays off the loan builds wealth. In the early years, that’s the small part:
| Part | Amount |
|---|---|
| Interest: paid to the bank | $39,467.27 |
| Loan paid off: yours to keep | $7,570.33 |
| Repayments in the first year | $47,037.60 |
The interest alone is about $759 a week, before council rates, insurance, strata and repairs.
None of these build wealth:
| Cost | Roughly, each year |
|---|---|
| Home loan interest | Most of each repayment in the early years |
| Council rates, water | Often a few thousand dollars |
| Home insurance | Paid every year, for as long as you own it |
| Strata levies (units) | Can be several thousand dollars |
| Maintenance and repairs | Often 1% or more of the value |
| What the deposit could earn | The return you give up by not investing it |
Buying also has big one-off costs. Stamp duty on an $800,000 home in NSW is $30,187, unless you get a first home buyer concession. Add conveyancing, inspections and possibly lenders mortgage insurance. Selling adds agent’s commission and marketing costs.
A rule of thumb
A quick comparison: the costs of owning that you don’t get back come to roughly 4% of the home’s value a year: rates, insurance and repairs of about 1% to 1.5%, and about 3% for the cost of the money tied up, through interest or lost investment returns.
Example: an $800,000 home
4% of $800,000 is $32,000 a year: about $2,670 a month, or $615 a week, the way rents are usually quoted. If you could rent a similar home for less, renting may cost less, as long as you invest what you save, in super or a low-cost ETF.
It’s a rough guide: interest rates, prices and costs vary a lot between cities, and between houses and units. The rent vs buy calculator runs the numbers with stamp duty and council rates for your state.
When buying makes more sense
- You’ll stay for years, long enough to earn back stamp duty and selling costs.
- You want stability: no leases ending, rent increases or moving when the owner sells.
- You’d never invest the difference. Paying off a home loan is a forced saving plan.
- Tax and retirement: your home is free of capital gains tax when you sell, and isn’t counted in the Age Pension assets test.
When renting makes more sense
- You might move for work or a relationship in the next few years.
- Rents where you want to live are low compared with prices.
- You’d rather keep your savings spread across investments than tied up in one property.
Bottom line
Rent pays for a home to live in, just as an owner’s interest and rates do. Compare the full costs, not rent against repayments. The borrowing power calculator shows what you could borrow, and the mortgage calculator what the repayments would be.