How this rent vs buy calculator works
"Rent is throwing money away" and "a mortgage is forced saving" are both half-truths. Rent buys you a place to live and nothing else; a mortgage payment buys a place to live plus a slice of equity, but it comes bundled with interest, tax, insurance, maintenance and the large one-off costs of buying and selling, none of which you get back. Whether owning wins depends on how long you stay, what the home does in value, and what the money you did not put into a deposit would have earned elsewhere.
At a glance
- Both paths start with the same cash; the renter invests what the buyer spends on a deposit and closing costs.
- Net cost is everything paid out minus what you could walk away with.
- Break-even is the first year the buyer's equity beats the renter's investment pot.
- Appreciation, investment return, rent growth and length of stay decide the answer.
This calculator puts both paths on the same footing. It gives the renter and the buyer identical cash, follows them year by year for as long as you plan to stay, and reports the net cost of each: everything paid out, minus what they would walk away with if they cashed out at that point. The year the buyer's net cost first drops below the renter's is the break-even year.
The model
Buyer net cost(t) = up-front + Σ ownership outflows − equity after selling costs(t)
Renter net cost(t) = Σ rent + Σ money invested − investment pot(t)
Buying is ahead when: Renter net cost − Buyer net cost ≥ 0
The buyer pays the deposit and closing costs at the start, then each year the mortgage payments, property tax and maintenance (both as a percentage of the current home value), insurance and any HOA fee. The home appreciates at the rate you set. Equity is the home's value less selling costs and less the mortgage balance, taken from a full amortisation schedule.
The renter invests the deposit and closing costs on day one at the investment return you set. Each year they pay rent (rising at the rent-growth rate) plus renter's insurance, and invest the difference between the buyer's outflow and their own. If renting costs more than owning in a given year, that difference is drawn from the pot instead.
Because the renter invests exactly what the buyer spends over and above rent, the two sides have handed over the same cash by any given year. The comparison therefore reduces to a single question: is the buyer's equity worth more than the renter's investment pot?
Worked example: the default inputs, year 1
Home $400,000, 20% down, 6.5% mortgage over 30 years, 3% closing costs; rent $2,500 a month.
Up front: $80,000 deposit + $12,000 closing = $92,000 for both.
Buyer's year 1: mortgage 12 × $2,022.62 = $24,271; tax and maintenance 2.2% of $412,000 = $9,064; insurance $1,500. Total $34,835. Home is now worth $412,000; mortgage balance $316,423; equity after 6% selling costs = 412,000 × 0.94 − 316,423 = $70,857.
Buyer net cost: 92,000 + 34,835 − 70,857 = $55,979.
Renter's year 1: rent $30,000 + insurance $200 = $30,200. Pot: 92,000 × 1.07 + (34,835 − 30,200) = $103,075.
Renter net cost: 92,000 + 34,835 − 103,075 = $23,760. Renting is ahead by about $32,000 after one year, the closing and selling costs have not been earned back.
Worked example: the crossover
Run the same inputs forward. Each year the buyer's equity grows from two sources, principal repaid (about $3,600 in year 1, rising every year) and appreciation on the whole $400,000 home, not just the $80,000 deposit, while the renter's pot grows only on itself and on the yearly difference, which shrinks as rent rises 3% a year.
By year 7 the buyer's equity after selling costs overtakes the renter's pot and buying is ahead. At the ten-year horizon buying leaves you roughly $26,000 better off, but move after five years and renting would have been the cheaper choice.
Reading the result
The headline tells you the break-even year, or that renting stays cheaper for the whole horizon. Beneath it, Net cost to buy and Net cost to rent are the totals at your horizon, and Difference is what separates them.
The chart draws both net-cost lines. Buying starts higher, those unrecoverable transaction costs, and, in most scenarios, falls below renting later as equity compounds. The dashed line marks the crossing.
The table shows the mechanics: the buyer's equity after selling costs and the renter's investment pot side by side, and the yearly advantage. Watch the Buying ahead by column; the year it turns from red to green is the break-even year, and its size at your horizon is how much your decision is worth.
The assumptions that decide it
Four inputs dominate, and they are the four nobody knows in advance:
- Home price growth. Appreciation works on the whole home value, so a leveraged buyer gains enormously from an extra point of growth, and loses just as fast if prices fall. Try 1% and 5%.
- Investment return. What the renter earns on the deposit they did not spend. Historically a diversified stock portfolio has returned around 7% nominal; a savings account far less. This single input can flip the answer.
- Rent growth. Rent that rises 3% a year doubles in about 24 years; a fixed-rate mortgage payment never rises. Long stays reward buyers for this reason alone.
- How long you stay. Buying costs roughly 9% of the home's value in round-trip transaction costs. The shorter the stay, the less time there is to earn that back. Under about five years, renting usually wins.
| Assumption | Default | Pessimistic for buying | Optimistic for buying |
|---|---|---|---|
| Home price growth | 3% a year | 1% | 5% |
| Investment return | 7% a year | 9% | 5% |
| Rent growth | 3% a year | 1% | 5% |
| Years you stay | 10 | 4 | 20 |
Property tax and maintenance are steadier but still significant: at 1.2% and 1% of value they cost $8,800 a year on the default home, roughly $730 a month that builds no equity.
What this calculator does not include
- Mortgage insurance for down payments under 20% (the calculator warns when this applies), typically 0.5 to 1.5% of the loan a year until you reach 20% equity.
- Tax deductions for mortgage interest and property tax. Most US households no longer itemise; if you would, buying is somewhat better than shown.
- Capital gains tax on the investment pot or, above the exemption, on the home.
- Rate changes. The mortgage is fixed for its term; the investment return and rent growth are constant. Real life is bumpier.
- Non-financial factors: stability, freedom to modify, the option to move for a better job, which may matter more than the number.
Using the result
Start with your honest expected stay, then stress-test: set appreciation to 1% and the investment return to 8% and see whether buying still wins; then the reverse. If buying wins in the pessimistic case, the decision is comfortable. If it only wins in the optimistic one, you are betting on the housing market. Whatever the answer, check the mortgage payment against your income with the debt-to-income calculator before you commit.