Rent vs buy calculator

Not the equity fairy tale — the honest net cost of buying against renting and investing the difference, over the years you actually stay. The default scenario — a $400,000 home, 20% down at 6.5%, versus $2,200 rent for 7 years — has renting saves $26,447, because buying's transaction costs do not pay off until year 15.

Worksheet

Home price $

Down payment %

Mortgage rate %

Years you'll stay yrs

Monthly rent $ / mo

Rent growth % / yr

Home appreciation % / yr

Investment return % / yr

Over your stay Renting saves $26,447

Net cost of buying: $168,489
Net cost of renting: $142,042
Break-even: renting wins for all 7 years
Home value at sale: $491,950
Mortgage balance at sale: $289,332

How the formula works

"Rent is throwing money away" is the line everyone knows, and it is wrong — or at least only half the ledger. Buying throws money away too: mortgage interest, property tax, insurance, maintenance, and the transaction costs of getting in and out of a house. This calculator compares the two honestly by tracking the net cost of each over the years you stay — everything you spend, minus everything you get back at the end.

The mortgage payment is the ordinary fixed-rate amortization, on the loan $L = \text{price} - \text{down}$ over a 30-year schedule, whatever your stay:

\[ M \;=\; L\cdot\frac{i\,(1+i)^{n}}{(1+i)^{n}-1}, \qquad i=\frac{r}{12},\quad n=360 \]

When the buyer sells at year $N$, the house is worth $V_N$ after appreciation, but 6% goes to selling costs and the remaining loan balance $B_N$ is repaid. What is left is the money buying actually returns:

\[ \text{sale proceeds} \;=\; V_N\,(1-0.06) \;-\; B_N, \qquad V_N = \text{price}\,(1+a)^{N} \]

Here is the crux — the opportunity cost. The renter never spends the down payment or the closing costs, so that money $S = \text{down} + \text{closing}$ stays invested and compounds at the return $g$ you could earn on it:

\[ \text{future value of the down payment} \;=\; S\,\Bigl(1+\tfrac{g}{12}\Bigr)^{12N} \]

To keep the comparison fair, both households are put on the same monthly budget: each month whichever one has the smaller housing bill invests the difference at the return $g$. Early on that is almost always the renter, because rent is well below a mortgage plus tax, insurance and upkeep — so the renter is quietly building a portfolio while the buyer is building equity. At year $N$ we compare where the two households end up:

\[ \text{net cost} \;=\; \text{total spent} \;-\; \text{what you walk away with} \]

For the buyer, "what you walk away with" is the sale proceeds; for the renter, it is the investment portfolio. Whichever number is smaller is the cheaper way to house yourself over that stretch — and because both budgets are identical, the smaller net cost is just the larger ending net worth said the other way round.

Why does the answer hinge on how long you stay? Because the costs of getting in and out of a house — 3% to buy, 6% to sell, plus the interest-heavy early payments — are front-loaded and fixed, while the benefits of owning accrue slowly. Spread 9% of round-trip transaction costs over three years and they sink the deal; spread them over fifteen and appreciation and principal paydown have time to bury them. Buying is not a machine that always builds wealth; it is a bet that you will stay long enough to outrun its own frictions.

What each input means

Home price and down payment: The purchase price and the share you put down. The down payment sets the loan ($L = \text{price} - \text{down}$) and, with closing costs, the pile of cash the renter gets to invest instead. This model does not add PMI for down payments under 20%, which would tilt things further toward renting.
Mortgage rate: The note rate on a 30-year fixed loan. The loan always amortizes over 30 years; if you sell sooner, the balance left is repaid out of the sale.
Years you'll stay: The single most important input. Transaction costs are paid once each way regardless of how long you stay, so the longer you hold, the more years there are to spread them over — which is why a short stay favors renting and a long one favors buying.
Monthly rent and rent growth: The rent on a comparable place today, and how fast it rises each year. Rent growth is the renter's headwind: it is the one cost that compounds against them while the buyer's principal-and-interest payment stays flat.
Home appreciation: How fast the home's value grows each year. It drives the sale proceeds — and it is a forecast, not a fact. Run it at 0%, or negative, to see how buying holds up when prices stall or fall.
Investment return: What the renter earns on the down payment, closing costs and monthly savings they never sink into a house. This is the opportunity cost of owning, and the comparison is highly sensitive to it: the wider the gap between this return and home appreciation, the longer buying takes to catch up.

Ownership costs beyond the mortgage are bundled at 2.6% of the home's value a year, growing with the home — roughly 1.1% property tax, 0.5% insurance and 1.0% maintenance. That keeps the form short; adjust the price if your county's tax or your upkeep runs higher.

A worked example

The worksheet's defaults: a $400,000 home bought with 20% down at 6.5%, against renting a comparable place for $2,200 a month — held for 7 years, with rent and the home both growing 3% a year and the renter earning 6% on invested cash.

Up front, buying takes $80,000 down plus $12,000 of closing costs — $92,000 the renter instead invests. At 6% that $92,000 alone grows to about $139,874 over 7 years.
The loan is $320,000 at 6.5% over 30 years, so principal and interest run $2,022.62 a month; year-one ownership costs add $10,400 (2.6% of $400,000), or $867 a month.
At year 7 the home is worth $400,000 × 1.03⁷ = $491,950. Take off 6% selling costs and the $289,332 still owed, and the sale returns $173,101.
Renting the whole time, the invested down payment and monthly savings grow to a portfolio of $199,548.

Netting it all out, buying costs $168,489 over the seven years and renting costs $142,042 — so renting saves $26,447. It is close, not a rout: seven years is near the fence. But at these rates, where the 6% a renter earns outpaces the 3% the home appreciates, buying does not actually overtake renting until year 15. Narrow that gap — a faster-appreciating home or a lower investment return — and the break-even marches back toward the familiar five-year rule of thumb.

Fig. 1 — Net cost of buying versus renting the default home, year by year, run out to 18 years so the crossing shows. Renting stays cheaper through the early years — the $92,000 sunk into the down payment and closing has to be earned back — and buying overtakes it at year 15, the break-even.

Assumptions and limits

Rates, growth and returns are constant. In reality rents, home prices and markets all move; treat the result as a base case and vary the inputs.
Ownership costs beyond the mortgage are bundled at 2.6% of home value a year (1.1% tax, 0.5% insurance, 1.0% maintenance), growing with the home. Your county's tax and your upkeep may differ.
Closing costs are 3% to buy and selling costs 6% to sell — the round-trip friction that a short stay cannot recover. Both are estimates; your market may run higher or lower.
Both households are held to the same monthly budget, so whoever spends less on housing invests the difference. Investment returns are shown before tax; a taxable brokerage account would keep a little less than the headline return.
PMI on down payments under 20% is not modeled — including it would push the answer further toward renting.
The mortgage interest deduction is ignored, and for good reason: since 2018 the great majority of filers take the standard deduction and get no benefit from it. It is not advice; it is arithmetic you can check.

Questions people ask

Is renting really throwing money away?

No. Rent buys you a place to live with none of ownership's own sunk costs — the mortgage interest that dominates early payments, property tax, insurance, maintenance, and the 3%-to-buy, 6%-to-sell transaction friction. A renter who invests the down payment and the monthly difference is not lighting money on fire; they are trading equity for liquidity and a market return. Whether that beats owning depends on the numbers on this page, not on a slogan.

What's the break-even horizon — how long do I have to stay?

The rule of thumb is about five years, but it is only a rule of thumb. The real break-even depends on the gap between what your home appreciates and what you could earn investing instead. With the defaults here — a 3% home against a 6% investment return — buying does not overtake renting until year 15. Close that gap and the break-even falls back toward five years; widen it and buying can take well over a decade to pay off.

Doesn't buying always build wealth?

Not always. Buying builds equity, but equity is not the same as coming out ahead. If you sell too soon, the 9% round trip of buying and selling costs plus the interest-heavy early payments can swamp the equity you built and the appreciation you earned — while the renter's invested down payment quietly compounded. Over a long enough stay buying usually wins; over a short one it can genuinely lose.

What about the mortgage interest deduction?

This model leaves it out on purpose. Since the 2017 tax law nearly doubled the standard deduction, the large majority of households take the standard deduction and deduct no mortgage interest at all. If you itemize and are in a high bracket it can tilt the math toward buying — but for most filers it changes nothing, so counting on it would overstate buying's case.

What if home prices fall?

Run the home appreciation input at 0%, or a negative number, and watch the sale proceeds — and buying's whole case — collapse. When prices are flat or falling, the buyer still pays the interest, tax, insurance, maintenance and transaction costs, but recovers little or nothing at sale, while the renter's invested cash keeps compounding. This is exactly the scenario where a short stay in a bought home hurts most.