Rent vs buy calculator

How to compare renting and buying

Renting and buying are two ways of housing yourself, and the honest comparison is between the wealth you would have after each. Buying turns cash into home equity; renting leaves cash in investments. This calculator follows both paths month by month and shows the gap, starting with hypothetical numbers: a 500,000 home with 20% down at 6%, against 3,000 of monthly rent. Replace every one of them. The comparison says which choice leaves more wealth under your assumptions. It does not say what you can afford, and it is not a forecast of prices or rents.

Use the page in three passes. First enter the facts you can check: the price you are considering, the rent for a comparable home, the mortgage rate you have been quoted and the deposit your landlord asks for. Second, enter the assumptions you must estimate, such as how fast prices and rents rise and what your savings could earn. Third, read the break-even and the sensitivity tab together, because a single break-even date hides how fragile it can be.

It also helps to decide in advance how long you expect to stay. A move in three years, a job relocation or a growing family can matter more than any rate. If you are unsure, compare several holding periods and see how much the answer changes before relying on one.

Upfront cash and refundable deposits

Buying needs a down payment and buying costs. In the example that is 100,000 plus 2% of the price, 10,000, so 110,000 in all. Renting needs a refundable deposit of 3,000 and a non-refundable 100 fee, so 3,100. To compare fairly, both sides start with the same assets, the larger of the two upfront amounts. The renter therefore begins with 106,900 invested, the cash the buyer would otherwise have put into the house.

The deposit is handled with care. It is money you get back, so it is not a cost, and it does not grow with rent. In this model it comes back once, at its original amount, whenever you hypothetically leave. It does not earn interest in between, and it is never counted as an expense and again as an asset. The non-refundable fee is a real cost of renting and reduces the renter's starting money.

Cash needed at the start is one of the biggest practical differences between the two paths. The buyer ties up a large sum in a single asset that is hard to turn back into cash, while the renter keeps the money invested and accessible. That flexibility has value, and so does the discipline of paying off a mortgage. The calculator treats both fairly by giving each side the same starting assets, but it cannot tell you how much you value being able to move quickly or having a reserve for emergencies.

Monthly ownership and rental costs

The mortgage payment is only part of owning. On a 400,000 loan at 6% over 30 years the principal and interest payment is 2,398.20. Add property tax (1.5% of the price, 7,500 a year), insurance (2,500), maintenance (1.5% of the price, 7,500) and any HOA fees or extra utilities, and month one costs 3,856.54, against 3,015.00 for rent plus renter insurance. Percentages of price are turned into dollars at the start and then grow at their own rates, so they do not automatically follow the home's value.

Costs step up once a year. Rent and the other costs rise at 3% in the example, applied from the second year. Private mortgage insurance, if you add it, is a percentage of the base loan charged for a set number of months. With 10% down, 0.5% PMI and 120 months, the first-year ownership cost rises by about 188 a month. The mortgage payment ends when the loan is paid off, and then owning is cheaper still. If a stay is shorter than the loan term, the remaining balance is settled from the sale.

Compare the two monthly figures as a budget, not as a verdict. A buyer's cost includes items that rarely feature in listings: maintenance that arrives in lumps, insurance that can rise, and property tax that may be reassessed after a sale. A renter's cost is simpler but rises with the lease, and a landlord can decide not to renew. Use the growth inputs to reflect your own market, and enter maintenance as a yearly percentage of the price if you are unsure, since older homes usually cost more to keep up than new ones.

Also test a higher rent and a lower rent than you pay today. Rent is usually the easiest input to check, and comparing a few values shows how much of the answer depends on it before you spend time on harder estimates such as price growth.

Home equity and invested savings

Equal budgets

Owning is often cheaper or dearer than renting in a given month. If only one side invested its savings, the comparison would be unfair. So each month both sides get the same housing budget: the larger of the buyer's cost and the renter's cost. Each side spends what its own housing costs, and invests the rest at the end of the month. The down payment is not a monthly cost, it is cash converted into equity. Principal repaid is never deducted a second time from the home's value.

A simple case shows the mechanics. Buy a 120,000 home for cash with no costs and no growth, against 1,000 monthly rent and a 1,000 deposit, for one year. The buyer owns a 120,000 home and has invested the 12,000 the renter spent on rent, so owns 132,000. The renter has 119,000 left plus the 1,000 deposit, so 120,000. Buying is ahead by 12,000, exactly the year's rent. Add 5,000 of buying costs and 5% selling costs and the gap shrinks to 1,000.

Think of equity as a savings account with a long lock. Each payment repays a little of the loan, the home's value moves with the market, and you can only reach the money by selling or borrowing against it. The renter's investments are the opposite: they move with markets and can be sold at any time, but nothing forces the renter to keep adding to them. The equal-budget rule in this model assumes both people are equally disciplined, so a gap in behaviour could change the real outcome.

The table above is deliberately small so that every line can be checked by hand. The same ledger runs month by month in the full model, and the page cross-checks it against a signed version of the ledger, so the wealth of each side is the same number however it is added up.

Selling costs and ending wealth

When you hypothetically sell, the home is worth the price grown by the appreciation rate. At 3% a year the 500,000 example is worth 1,213,631 after 30 years. Selling costs of 7% come from that exit value, not the original price, and the remaining loan is repaid from the proceeds. In the base case selling costs are 84,954, the loan is paid off, and net proceeds are 1,128,677.

Early in the stay the numbers look very different. After one year the balance is still large and selling costs are paid on a house that has hardly grown, so the net sale is small and can even be negative if the price has fallen. A negative amount means cash you would have to bring to close; it is shown as negative, not rounded to zero. This is why the same decision can look poor after two years and good after twenty.

Selling costs are easy to overlook because they are paid once, at the end. They typically include agent commissions, transfer taxes and legal fees, and they are a percentage of the sale price, so they grow with the home. That is why short stays favour renting in most markets: the buyer must recover the buying costs and the selling costs before the extra equity shows up. Enter the percentage that applies where you live, not a generic one, and consider a higher figure if you expect to sell in a weak market.

What break-even means

The break-even is the first month in which buying leaves at least as much wealth as renting. In the base case that happens at 8.3 years (month 100), and buying stays ahead through the 30-year horizon, finishing 518,053 ahead. At month one, buying is 44,632 behind, mostly because of buying costs and the selling costs that would be paid on an immediate sale. The comparison is made at monthly precision. The page shows years to one decimal with the month in brackets, and it does not invent a fractional-month crossing.

The answer is not always a single date. There may be no crossing at all: with 1,000 rent instead of 3,000, the final difference is -1,807,208, and the winner at exit is renting. Notice what that sentence says. It reports who is ahead at the end of the horizon, not that buying "never" wins. There can also be several crossings. In an extreme test with falling rents and falling prices over 50 years, the lead changes at months 5 and 175. Real markets are not like that test, but it shows why a calculator should report every crossing and whether the lead is kept, instead of declaring that buying wins after X years for good.

Read the break-even as a range, not a promise. If buying wins only after a long stay, or only when prices rise faster than they have in your market, treat that as a warning. If it wins at a short horizon under cautious assumptions, the case is stronger. The most useful thing to ask is not "when does buying win?" but "what would have to be true for the answer to change?", and the sensitivity tab is built to answer that.

Return and growth sensitivity

The result depends on three assumptions no one can know: home appreciation, rent growth and the return on savings. The Sensitivity tab changes one at a time by one percentage point. For the base case, the difference at exit is 518,053. Home appreciation -1 percentage point: 231,659. Rent growth -1 percentage point: 111,292. A higher investment return helps the renter's savings and the buyer's too, but it helps whichever account is larger, so the direction is not obvious until you run it. Treat the table as a map of what matters, not a probability. Use both a cautious and an optimistic scenario before deciding.

Each one-point change is a way to see which assumption you should research hardest. If a point of appreciation moves the answer far more than a point of rent growth, spend your time on local price history. If the return on savings dominates, test a lower and a higher figure than your first guess. Rates that look reasonable in one decade can look very different in the next, so avoid building a decision on a single long-run average. Nothing in this table is a forecast, and none of the cases is more likely than the others.

Tax assumptions and model limits

The calculator is pretax by default. It does not apply income-tax brackets, deductions or capital-gains rules, because those depend on your filing situation, itemizing and the law in force, and an unverified automatic deduction would flatter owning. Many calculators include such a tax engine, so their break-even years can differ from this one. If you have worked out a net yearly tax benefit of owning, enter it in the optional field, and it lowers the cost of owning each month. Use a negative number if owning adds tax. Treat it as your own assumption, and ask a tax adviser how it applies to you.

Other limits: the model has no moving costs, no change in family size, no rent control and no chance of a forced sale, and it assumes you could invest at the stated return. It does not decide what you can afford; use the home affordability calculator or the rent affordability calculator first. To inspect the loan itself use the mortgage calculator, and to plan the cash you need up front use the down payment calculator. A different question, whether to pay a mortgage down early or invest instead, is covered by the mortgage payoff vs investing calculator; it assumes you already own the home.

Finally, remember what the model leaves out. It does not price the stress of a repair bill, the freedom of a lease ending, or the pleasure of owning a home you can change. Those matter and they differ from person to person. Use the calculator to be clear about the financial side, then weigh the rest yourself. For a related decision once you own a home, the mortgage payoff versus investing page is the better tool, and it is linked above.

Rent versus buy questions

Is a mortgage payment the same as the cost of owning?

No. Taxes, insurance, maintenance and transaction costs matter, while principal builds equity.

Is the renter's deposit lost?

This model returns the nominal deposit at the assumed exit. It does not assume interest or deductions.

Who invests monthly savings?

Either side. Both receive the same modeled housing budget and invest any amount left after costs.

Does the calculator calculate tax deductions?

No. It starts pretax; an optional annual net tax benefit is an assumption you supply.

Can buying become cheaper and later lose again?

Yes. The results report later crossings rather than assume the first crossover is permanent.

Does the result tell me what I can afford?

No. It compares scenarios assuming either is feasible; use a separate budget tool and check real costs.