Rent vs Buy Calculator
Enter the home price, mortgage terms and ownership costs on one side and your rent on the other to see the total net cost of buying versus renting over your time horizon, plus the break-even year at which buying becomes cheaper.
Compare the Cost of Renting vs Buying a Home
Rent vs Buy Formula
Where:
- \(M\) — monthly mortgage payment (principal and interest)
- \(L\) — loan amount: home price minus the down payment
- \(i\) — monthly interest rate: the annual mortgage rate divided by 12
- \(n\) — total number of payments: loan term in years times 12
- \(C_{\text{buy}}(t)\) — net cost of owning the home for \(t\) years
- \(S_{\text{buy}}(t)\) — everything the buyer pays by year \(t\): down payment, closing costs, mortgage payments, property tax, insurance, HOA dues and maintenance
- \(V_t\) — the home's value in year \(t\), growing at the appreciation rate
- \(B_t\) — the remaining loan balance in year \(t\)
- \(c_{\text{sell}}\) — selling costs as a fraction of the sale price
- \(C_{\text{rent}}(t)\) — net cost of renting for \(t\) years
- \(S_{\text{rent}}(t)\) — total rent and renter's insurance paid by year \(t\)
- \(A_t\) — the renter's investment balance: the down-payment cash plus each month's savings, compounded at the investment return
The comparison values both options the same way: total cash out, minus the wealth you get back — home equity after selling costs for the buyer, the investment balance for the renter. The option with the lower net cost at your horizon is the cheaper one.
Rent vs Buy – Calculation Example
Example: A $400,000 home bought with 20% down on a 6.5% 30-year mortgage, with 3% closing costs, 1.1% property tax, $1,800/yr insurance, 1%/yr maintenance, 3%/yr appreciation and 6% selling costs — versus renting a comparable home for $2,600/month rising 4% per year, with $180/yr renter's insurance, a 7-year horizon and a 6% investment return (the calculator's default values).
The loan amount is \(L = 400{,}000 \times (1 - 0.20) = 320{,}000\), at a monthly rate of \(i = 0.065/12 = 0.0054167\) over \(n = 360\) months:
\[ M = 320{,}000 \cdot \frac{0.0054167\,(1.0054167)^{360}}{(1.0054167)^{360} - 1} \approx 2{,}022.62 \]
Result: The monthly mortgage payment (P&I) is about $2,022.62. Over the 7-year horizon the net cost of buying is about $166,800 and the net cost of renting about $105,400, so renting is cheaper by roughly $61,000 — the calculator reports no break-even year within the 7-year window.
How to use the calculator
- Under Buying a Home, enter the Home price, Down payment (as a percentage), Mortgage interest rate, and choose a Loan term of 10, 15, 20 or 30 years.
- Fill in the owner's costs: Closing costs, Property tax, Homeowner's insurance (per year), HOA dues (per month) if any, and annual Maintenance as a percentage of the home's value.
- Set Home appreciation (how fast the property's value grows) and Selling costs (realtor and other fees due when you sell).
- Under Renting, enter the Monthly rent for a comparable home, the Annual rent increase, and Renter's insurance (per year).
- Under Time Horizon and Investments, set the Years to compare (you are assumed to sell the home at the end) and the Investment return earned on the cash a renter keeps free.
- Read the Net cost of buying, Net cost of renting and Cheaper option, then check the Break-even year, the Monthly mortgage payment (P&I), the cumulative cost chart and the year-by-year table below the results.
What "net cost" means — and why it matters
Comparing a rent check to a mortgage payment is misleading. Part of every mortgage payment builds equity, and the home itself may appreciate; a renter gets none of that back, but keeps the down-payment cash free to invest. Both sides also carry costs the other doesn't: the buyer pays closing costs, property tax, insurance and upkeep, and sells at a discount through realtor fees; the renter pays rising rent and gives up any investment gains they would have made on tied-up cash.
The calculator therefore simulates both paths month by month. For the buyer, it adds up the down payment, closing costs, mortgage payments, property tax, insurance, HOA dues and maintenance, then subtracts what you would recover by selling at that point: the home's value minus the remaining loan balance and selling costs. For the renter, it adds up rent — which steps up once a year — plus renter's insurance, then subtracts the investment account built from the buyer's upfront cash and any monthly savings, compounded monthly at your assumed return.
Whichever net cost is lower at your horizon wins. The Break-even year is the first year in which selling the home would leave you no worse off than renting that long; before it, renting is cheaper even after counting the renter's investment gains. Because transaction costs are front-loaded while equity and appreciation compound over time, short horizons usually favor renting and long ones buying — which is why the default 7-year scenario keeps renting ahead.
Assumptions, limitations and practical tips
- Taxes are excluded. The mortgage interest and property tax deductions, the capital-gains exclusion on a primary residence, and taxes on investment gains can all shift the result, often in the buyer's favor.
- PMI is not modeled. With a down payment under 20%, most lenders add private mortgage insurance, which can add 0.3–1.5% of the loan per year to the buyer's side.
- The renter is assumed to be disciplined. All of the down-payment cash and every monthly difference is invested at the stated return. If that money sits unspent or uninvested, renting looks worse than shown.
- Small assumption changes matter. Appreciation, rent growth and investment returns are guesses; a 1–2 percentage point change in any of them can flip the answer. Run a few realistic scenarios rather than trusting one.
- Fixed dollar amounts stay nominal. Insurance, HOA dues and renter's insurance do not rise with inflation in this model, while rent, taxes and maintenance do grow.
- Before committing, check how the payment fits your budget with the debt-to-income ratio calculator; extra principal payments, which you can model with the mortgage payoff calculator, also shorten the break-even horizon.
Frequently Asked Questions
What is the price-to-rent ratio and how do I use it as a quick rule of thumb?
Divide the home price by the annual rent for a comparable home: \( P / (12r) \). A ratio under 15 generally leans toward buying, 15–20 is a toss-up, and above 20 usually favors renting. Another shortcut, the 5% rule, treats annual ownership costs as roughly 5% of the home price (3% forgone investment return, ~1% property tax, ~1% maintenance) versus annual rent. Use these only as a first screen — the calculator is far more precise.
Why does the calculator say renting is cheaper but my friends say buying always wins?
Because the answer depends heavily on your time horizon and assumptions, not on a universal truth. Buying front-loads transaction costs (closing costs, then 5–6% selling costs again when you move) while equity and appreciation build slowly, so short stays usually favor renting. Over 10+ years, покупке appreciation and fixed mortgage payments typically overtake rising rent. Also, this model excludes taxes: mortgage-interest and property-tax deductions often swing results back toward buying.
How long should I plan to stay in a home before buying beats renting?
There is no single number, but a common planning benchmark is 5–7 years as a rough threshold, and many analyses suggest buying becomes clearly cheaper after 8–10 years. The exact break-even depends on closing and selling costs, appreciation, rent growth and investment returns. Run the calculator twice — once with your realistic horizon, once a few years longer — to see how sensitive the answer is to when you might move.
What is the 5% rule for rent vs buy decisions?
Estimated by Ben Felix, it approximates the unrecoverable cost of owning as about 5% of the home's value per year: roughly 3% is the investment return you forgo on your down payment and equity, plus about 1% property tax and 1% maintenance. Compare that to your annual rent — if 5% of the home's price exceeds one year of rent, renting is likely cheaper on an unrecoverable-cost basis. The calculator refines this by tracking exact mortgage amortization, appreciation and invested savings.
Does the calculator include PMI if my down payment is under 20%?
No — PMI is not modeled, so with a down payment below 20% the tool understates the cost of buying. Private mortgage insurance typically adds 0.3–1.5% of the loan balance per year, e.g. about $80–$400/month on a $320,000 loan. To approximate it, increase the mortgage interest rate by roughly the PMI rate (in basis points), or add the annual PMI premium to the homeowner's insurance field until you cross 20% equity and the PMI drops off.
How do taxes change the result?
The comparison is pre-tax, which usually biases it against buying. Mortgage interest and property taxes may be deductible if you itemize, primary-residence capital gains up to $250,000 (single) or $500,000 (married) are excluded at sale, and mortgage payments are locked in nominal dollars. On the renter's side, investment gains owe capital-gains or income tax. If you expect to itemize deductions or hold long term, buying likely does somewhat better than shown — consult a tax professional for your situation.
What assumptions am I most likely to get wrong?
Three guesses dominate the output: home appreciation, rent growth and investment return. A 1–2 percentage point change in any of them can flip the winner, since they compound over the whole horizon. People also tend to forget that maintenance averages about 1% of the home's value per year (more for older homes) and that selling costs alone erase roughly the first year of appreciation. Test a pessimistic, realistic and optimistic scenario before concluding anything.