How the result is calculated
"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. This guide sets out how the two paths are made comparable, works the opening American case and two others through, and ranks the inputs by how much they move the answer.
Buyer net cost(t)up-front + Σ ownership outflows − equity(t)
Renter net cost(t)Σ rent + Σ money invested − investment pot(t)
Buying is ahead when: Renter net cost − Buyer net cost ≥ 0
- up-front
- the deposit plus the transfer tax and the other costs of buying, paid by the buyer and invested by the renter
- ownership outflows
- mortgage payments, property tax, maintenance, insurance and any building charge, year by year
- equity(t)
- the home's value in year t, less selling costs and less the mortgage balance from a full amortisation schedule
- investment pot(t)
- the renter's up-front sum plus each year's difference between the buyer's outflow and the rent, grown at the investment return
The buyer pays the deposit, the transfer tax and the other buying costs at the start, then each year the mortgage payments, the recurring property tax, maintenance, insurance and any building charge. The home appreciates at the rate you set. The renter invests the same up-front sum 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, and only the two closing positions differ: the home's value after selling costs and the mortgage balance on one side, the pot on the other.
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Up-front cash, both sides | $89,600 | 80,000 deposit + 1,600 transfer tax + 8,000 other buying costs |
| Year 1, the buyer | ||
| Mortgage payments | $24,271 | 12 × 2,022.62 on the 320,000 loan |
| Property tax and maintenance | $8,736 | on the new value of 416,000 after 4% appreciation |
| Insurance | $1,500 | home insurance |
| Ownership outflow | $34,507 | 24,271 + 8,736 + 1,500 |
| Equity after selling costs | $74,617 | 416,000 − 6% selling costs − 316,423 mortgage balance |
| Buyer net cost | $49,491 | 89,600 + 34,507 − 74,617 |
| Year 1, the renter | ||
| Rent | $24,000 | 12 × 2,000 |
| Investment pot | $106,379 | 89,600 × 1.07 + (34,507 − 24,000) |
| Renter net cost | $17,728 | 24,000 + 89,600 + 10,507 − 106,379 |
| After 10 years | ||
| Selling costs in year 10 | $35,526 | 6% of the home's value, 592,098 |
| Buyer net cost | $166,911 | everything paid out, less equity after selling |
| Renter net cost | $152,027 | everything paid out, less the pot |
| Renting is ahead by | $14,884 | 166,911 − 152,027: no year breaks even on these figures |
After one year renting is ahead by about $31,800, because the buying costs and the first year's interest have not been earned back; after ten the gap has narrowed to $14,884 but not closed.
| Case | Break-even | Why |
|---|---|---|
| Spain (Cataluña): 230,000 euro home, 10% ITP, rent 1,000 a month, mortgage at 3% | year 8 | 23,000 of tax alone, yet about 19 years of rent buys the home |
| New Zealand: 830,000 dollar home, no transfer tax, rent 2,400 a month, mortgage at 5.5% | none in 30 years | about 29 years of rent to buy, and a mortgage rate nearly twice as high |
The country with the worst entry cost wins, and the country with none loses. What separates them is the price-to-rent ratio and the mortgage rate, which is why a calculator hard-coded to one country cannot be adapted by changing the currency symbol.
Reading the result
The headline says which path is cheaper over the period you chose and by how much. Net cost to buy and net cost to rent sit beneath it, each with the figures it was built from, and the chart traces both year by year; where the lines cross is the break-even year. What getting in and out costs lists the transfer tax, the other buying costs and the selling costs at the horizon, each with the rule it came from.
The two running-cost tables put what renting and what owning cost in the first year side by side, read per month or per year with the selector above them. They are the first row of the year-by-year comparison before any equity or investment return is counted, which is why owning usually looks dearer there than it does at the horizon.
Break-even is not the year the mortgage is cheaper than the rent. It is the first year the buyer's net cost drops to the renter's: everything the buyer has paid out, less what the home would return after selling costs, against everything the renter has paid out, less the pot.
What changes the result
The levers, in order of how much they move the answer
- Length of stay. The entry and exit costs are fixed; the longer you stay, the more years there are to spread them over. Almost nothing rescues a two-year purchase.
- Investment return. The most sensitive input, and the least knowable. It is the renter's whole case. Try the comparison at two or three returns before trusting it.
- Price-to-rent. Divide the price by twelve times the rent. Below about 15 buying tends to win quickly; above 25 it rarely wins at all.
- Rent growth. Rent rising 3% a year doubles in about 24 years; a fixed-rate mortgage payment never rises. Long stays reward buyers for this alone. Several European countries cap rent rises on an existing tenancy, which is why their defaults put rent growth below house-price growth.
- Appreciation. It compounds on the whole house, not just your deposit, which is the leverage argument for buying. It can also be negative, and in a country whose prices have gone nowhere for decades the leverage argument does no work at all.
Buying and selling costs are not yours to guess
Most rent-vs-buy calculators ask you for "closing costs, %". Almost nobody knows their own, and the honest answer is that it is set by law where you live. So this tool does not ask. It takes the transfer-tax scale from your country's own rules and adds its published notary, legal and agency costs. Across the countries here that one-off tax runs from nothing at all to a tenth of the price, and where it is large it is the biggest single cost of buying, larger than the deposit itself on a small deposit, which the tool warns about when it happens.
The United States sits at the gentle end of that range and the awkward end of another. Transfer and recording tax is set by state, county and sometimes city, ranges from nothing in thirteen states to over 2%, and in much of the country is paid by the seller; the 0.4% used here is a representative buyer-side figure, so check your county recorder. American exit costs are the opposite, among the highest anywhere, with agent commission historically 5% to 6% and more negotiable only since the 2024 NAR settlement.
Where the tax is set regionally, a German Land, a Spanish comunidad autónoma, a French département, pick your region and the figure follows. Each country's own page carries its rules and the authority they came from. The mortgage calculator reads the same dataset, so the two tools always agree about what buying costs.
What is not included
- Mortgage insurance. Where a country charges it, a small deposit costs more than shown. The tool says so when it would apply, and the mortgage calculator includes it properly.
- Tax relief on mortgage interest. Still material in the Netherlands and absent in most other countries here. Where it exists, buying is better than shown.
- Tax on investment gains. The renter's pot grows untaxed here. In reality most countries tax it, so the renter's side is flattered.
- First-time buyer reliefs, which can remove the transfer tax entirely for a first purchase in Britain and the Netherlands.
- Everything that is not money. Security of tenure, the freedom to redecorate, the freedom to leave in a month. These decide a lot of real cases and no calculator can weigh them for you.
Using the result
Treat the break-even year as the question "how long am I confident I will stay?" rather than as a prediction. If the answer is comfortably longer than the break-even, buying is the better financial bet on these assumptions. If it is close, the assumptions are doing the work, not the arithmetic, and you should move the investment return and the appreciation rate a couple of points each way to see how fragile the answer is.