Rent vs. Buy: Why High Interest Rates Are Changing the Rules
- Kirk Reagan
- Feb 11
- 3 min read
Updated: Feb 12
For years, the conventional wisdom was simple: if you expect to stay in one place for at least three years, buying a home is smarter than renting.
That rule of thumb worked in a world of low interest rates and steady home appreciation. But today, with mortgage rates sitting at some of the highest levels in a generation, the math has changed — and for many military families, buying may not be the obvious financial win it once was.
In some situations, it may not make sense to buy a home at all during a short move, even if you’re staying five years or longer.
Why the 3-Year Rule Doesn’t Work Anymore
When rates were low, the decision was straightforward:
Low Borrowing Costs: A 3% mortgage made monthly payments much cheaper, often rivaling rent.
Equity Build-Up: Payments quickly chipped away at principal, helping service members build wealth while stationed. At a 3% rate, about 41% of your first payment goes towards principal.
Home Price Appreciation: Rising home values often provided an additional tailwind, making ownership even more profitable.
But at today’s higher rates, the situation looks very different:
Higher Monthly Payments: Even with VA loans, mortgage payments can now be hundreds (or thousands) more than renting the same property.
Slower Equity Growth: With so much of your payment going toward interest, it takes years longer to build meaningful ownership in your home. At a 7% rate, only about 12% of your first payment goes towards principal.
Weaker Wealth Trade-Offs: Historically, mortgage rates were much lower than stock market returns, creating a comfortable margin for buyers. That margin — the “shrinking spread” — has nearly vanished, making housing a less efficient way to deploy capital.
Here’s the real challenge: when you buy at high rates, you’re not just committing to a higher monthly payment — you’re tying up capital in a slower-growth asset.
Less Flexibility: PCS orders can come suddenly, and being locked into a high-rate mortgage makes selling or renting your home much riskier.
Tighter Margins: If you have to sell after a short tour, the transaction costs of buying and selling (realtor fees, closing costs, repairs) often wipe out any equity you’ve built.
Opportunity Cost: Money tied up in a down payment or monthly mortgage could potentially work harder in other investments — especially when the difference between expected stock market returns and mortgage costs is narrower than ever.
The bottom line: what used to be a clear advantage for buyers has now often flipped considerably!
Every Market — and Every Family — Is Different
Of course, no two duty stations are alike. San Diego is not San Antonio; Norfolk is not Colorado Springs. Local rental prices, housing demand, and neighborhood trends all shift the math.
And no two families are alike either. Some military families may prioritize stability and the pride of ownership. Others may prefer flexibility and liquidity, especially with frequent PCS moves.
That’s why there’s no one-size-fits-all answer. To cut through the confusion, I’ve built a Rent vs. Buy Calculator. It factors in:
Your timeline
Current interest rates
Local housing costs
Inflation
Investment Returns
Rental prices
The goal isn’t to tell you what to do — it’s to provide some objectivity to your decision.
👉 Try the calculator here: https://www.highflightfinancial.biz/rent-vs-buy-3
Final Thoughts
The old 3-year rule was simple, but it doesn’t reflect today’s reality. With higher interest rates and a shrinking spread between mortgage costs and investment returns, the financial case for buying is often weaker than it used to be. For some families, renting isn’t just the “safer” option — it’s now the smarter long-term move.
That said, every housing market is unique, and every family has different goals. Before you make a decision, run the numbers, consider your timeline, and make sure the choice supports your broader financial mission. If you want a professional analysis, send me an email and I’d be glad to help.
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