To simplify, rather than a 30 year mortgage with equal payments. We will assume the following. When you borrow money to buy a house (taking a mortgage), you pay interest for the length of the loan, then pay the entire loan off at the end of borrowing period. E.g., if you take a 100,000 loan at 8%, you would pay 8,000 every year until you pay the full 100,000 loan back to the bank. Lets also assume that tax is 40%. Remember, interest payments are tax deductible, so you dont pay tax on them. Ie suppose you earn 50,000. Normally, your tax bill would be 20,000 (40% of 50k). But if you pay 8,000 in tax, you are only taxed on 42,000, or 16,800. Here is the scenario to consider. You are thinking about buying a 200,000 house. You can borrow at 8%. You are required to pub 20% as a down payment (which you have the ability to pay based on your bank account)

1) How much are you spending yearly on housing?

2) If you had a choice between this house, and renting, from a purely financial point of view, what rent would you be willing to pay?

3) Suppose you hold the house for 10 years and then sell it for 200,000. What is your total spend on housing over the 10 year period?

4) Following on #3, if rather than buying a house for 10 years, and from a purely financial point of view, how much would you be willing to spend on rent?

5) How does your answer to 4) change if you predict rent will go up by 5% every year?

6) Suppose you hold the house for 10 years, but you sell it for 240,000. What is your total spend over the 10 year period?

7) Following on #6, what rent would you be willing to pay?

8) Following on 6 and 7, what rent would be willing to pay, if you predict rent goes up 5% a year?

9) Please re-do 6-8 but rather than the house value in 10 years going to 240,000, it falls to 160,000

10) As per 10, what might go through a house owners mind if their house value drops?