How this rent vs buy calculator decides
Comparing a mortgage payment with rent is not enough. Part of a mortgage payment builds equity, but owning also brings closing costs, selling costs, property tax, insurance and repairs. And the cash you put into a home could have been invested instead. This calculator compares the two choices the way an economist would: it follows two people with the same savings and the same housing budget, and asks who is richer at the end.
- Day one. The buyer pays the down payment and closing costs. The renter invests exactly the same amount.
- Every month. The buyer pays principal and interest, property tax, maintenance, home insurance and any HOA fee. The renter pays rent and renters insurance. Whoever spends less that month invests the difference.
- Growth. The home’s value grows at your price growth rate. Rent rises once a year. Both investment pots grow at the investment return.
- The end. The buyer sells the home, pays selling costs and clears the mortgage. Each person’s net worth is then compared.
The formulas
Renter net worth = (down payment + closing costs) invested + every month’s (owner cost − rent) invested
The monthly mortgage payment uses the standard formula M = L × r ÷ (1 − (1 + r)^−n). Property tax and maintenance are a percentage of the home’s value at the time, so they rise as the home appreciates. The investment return is compounded monthly at the equivalent of your yearly rate.
The break-even year is the first year in which the buyer’s net worth catches up with the renter’s. If that happens after your chosen stay, the calculator still tells you when it would happen.
Worked example 1: the default numbers
A $400,000 home or $2,200 a month in rent, staying 7 years.
- Upfront: $80,000 down (20%) plus $12,000 of closing costs (3%) = $92,000
- Mortgage: $320,000 at 6.5% for 30 years = $2,022.62 a month
- First month of owning: $2,022.62 mortgage + $366.67 property tax (1.1%) + $333.33 maintenance (1%) + $150 insurance = $2,872.62
- First month of renting: $2,200 rent + $15 renters insurance = $2,215
The buyer spends about $658 a month more at the start, and the renter invests that gap along with the $92,000. After 7 years, with home prices and rent both rising 3.5% a year and investments earning 6%:
- The home is worth $508,912. Selling costs of 6% take $30,535 and the loan balance is $289,332, leaving the buyer $189,045.
- The renter’s investments have grown to $191,730.
- Renting is ahead by $2,685, almost a tie. Buying pulls ahead in year 8.
Over 15 years the picture changes: buying leads by $87,686, because the fixed costs of buying and selling are spread over more years and the mortgage payment stays flat while rent keeps rising.
Worked example 2: how sensitive the answer is
Same home, same 7-year stay, changing one assumption at a time:
| Change | Result after 7 years | Break-even |
|---|---|---|
| Default (6.5% rate, 3.5% price growth, 6% return) | Renting ahead by $2,685 | Year 8 |
| Stay only 3 years | Renting ahead by $25,483 | Year 8 |
| Mortgage rate 5% instead of 6.5% | Buying ahead by $36,758 | Year 4 |
| Home prices grow 1% a year | Renting ahead by $71,631 | Year 22 |
| Rent is $1,800 instead of $2,200 | Renting ahead by $48,313 | Year 30 |
| Investments earn 8% instead of 6% | Renting ahead by $26,342 | Year 17 |
Three inputs drive almost everything: how long you stay, the price compared with rent, and the gap between home price growth and the investment return. Small changes to any of them can flip the answer, so test a few scenarios rather than trusting a single number.
Worked example 3: the price-to-rent ratio
A quick screen before you run the full numbers is the price-to-rent ratio: the home price divided by one year of rent for a similar home.
| Price-to-rent ratio | What it usually suggests |
|---|---|
| Below 15 | Buying is often cheaper over a normal stay |
| 15 to 20 | Close call; your stay and rates decide |
| Above 20 | Renting and investing the difference often wins |
The default example is $400,000 ÷ ($2,200 × 12) = 15.2, right at the boundary, which is why the result is nearly a tie at 7 years. These bands are rules of thumb, not laws. Mortgage rates matter a lot: the same ratio favours buying much more at 4% than at 7%.
Costs of owning that people underestimate
| Cost | Typical range | Notes |
|---|---|---|
| Closing costs | 2% to 5% of the price | Lender fees, title, appraisal, taxes. Listed on your Loan Estimate |
| Selling costs | 5% to 8% of the sale price | Agent commissions, transfer taxes, repairs |
| Maintenance | About 1% of the value a year | More for older homes; budget for roofs and boilers |
| Property tax | Roughly 0.3% to 2% a year | Varies hugely by state and county |
| Insurance | Varies by area | Higher where storms, floods or wildfires are common |
| PMI | Often 0.3% to 1.5% of the loan a year | Only with less than 20% down; not modelled here |
Tips
- Be honest about how long you will stay. Buying and then selling costs around 10% of the price in fees alone. If there is a real chance you move within three or four years, renting usually wins.
- Use a realistic investment return. The renter only gets this return if they actually invest the savings every month. If the money would be spent instead, set the return to 0% and buying will look better.
- Compare like with like. Use the rent for a home of the same size, location and quality as the one you would buy.
- Check affordability separately. Even if buying wins on paper, the payment has to fit your budget. The house affordability calculator applies the 28/36 rule, and the debt-to-income ratio calculator shows what lenders will see.
- Plan the upfront cash. The down payment calculator shows how much cash you need and how long saving it might take.
Common mistakes
- Comparing rent with the mortgage payment alone. The owner also pays tax, insurance, maintenance and fees, which in the default example add $850 a month on top of the mortgage.
- Calling all of the mortgage payment “equity”. In the first year of a 6.5% mortgage, about 85% of each payment is interest. The mortgage calculator shows the split month by month.
- Assuming prices always rise fast. Home prices can stall or fall for years, especially after a boom. Try 0% or 1% growth to see the downside.
- Forgetting the opportunity cost. A $92,000 down payment invested at 6% a year roughly doubles in 12 years. The compound interest calculator shows the effect.
What this calculator leaves out
Taxes are not modelled. In the US, the mortgage interest deduction only helps if you itemize, and most households now take the standard deduction instead. Profit on selling a main home is often tax-free up to $250,000 ($500,000 for married couples filing jointly) under the rules in IRS Publication 523, while investment gains may be taxed, which tilts results slightly towards buying. Also left out: PMI, the cost of moving, furnishing a larger home, and non-money reasons such as stability, control over the home and the freedom to move. Use the result as one input to the decision, not the whole answer.