How to use the rent vs buy calculator
- Enter how many years you expect to stay, then the home price, down payment, mortgage rate and term.
- Enter yearly property tax (a percent of home value), insurance, your home value growth assumption and the rent for a comparable home with its yearly increase.
- Set the return on money you invest instead. Under More options you can change buying and selling costs, maintenance, HOA dues, renters insurance and the yearly increase in insurance and HOA dues.
- Read who is ahead after your stay, the first year buying pulls ahead, and the year-by-year table. Every assumption is yours to change, so try several.
Formula
Owner monthly cost = mortgage principal and interest + home value x tax % / 12 + home value x maintenance % / 12 + (insurance / 12 + HOA) x growth
Renter monthly cost = rent x (1 + rent increase)^(year - 1) + renters insurance / 12 x growth
Day one: the renter invests the down payment plus buying costs
Each month, whoever pays less invests the difference: balance = balance x (1 + return / 12) + difference
Owner net worth = home value x (1 - selling cost %) - loan balance + owner investments
Home value, property tax and maintenance grow with the home value assumption each year. Mortgage payments follow the loan schedule to the cent. Net worth at each year end assumes a sale at that point.
Worked examples
A hand check with zero rates: a $120,000 home, nothing down, a 15-year loan at 0 percent and $1,000 of rent. The payment is $666.67, so the owner pays $333.33 less each month and invests it at 0 percent, or $3,999.96 in a year. After 12 payments the loan balance is $111,999.96, so selling nets $8,000.04. The buyer ends $12,000.00 ahead and the renter has $0.
The defaults: a $400,000 home, 20 percent down, 6.5 percent for 30 years, 1 percent tax, $1,500 insurance, 1 percent maintenance, 3 percent growth in value and rent, $2,400 of rent, 3 percent buying costs and 6 percent selling costs. Month 1 costs the owner $2,814.29 and the renter $2,400.00. The loan payment is $2,022.62, and buying takes $92,000 of cash ($80,000 down plus $12,000 of buying costs).
Over time: after 5 years renting is ahead by $3,490.40. By year 6 buying pulls ahead by $5,437.09, and after 7 years the buyer has $173,100.82 against the renter's $157,791.24, a $15,309.58 lead. The home is worth $491,949.55 and the loan balance is $289,331.75.
Ten years: buying leads by $51,276.90 ($235,151.78 against $183,874.88). Rent has by then grown past the owner's cost in some months, so the owner also invests some of the difference.
Why a net worth comparison
Comparing monthly payments alone favors renting, because a mortgage payment plus taxes and upkeep is usually larger than rent. That ignores what each path builds. When you buy, part of each payment becomes equity, and the home may gain value. When you rent, the cash you did not spend on a down payment and the monthly difference can be invested.
This tool treats both sides the same way. The renter invests the down payment and buying costs on day one. Whoever has the lower monthly bill invests the difference every month. At the end it compares what each person would have if the home were sold, using net worth rather than cost.
Assumptions that decide the result
A few inputs drive almost everything: how fast home values and rents grow, the return on investments, the length of your stay, and the cost to buy and sell. Changing home value growth from 3 to 1 percent, or the investment return from 5 to 8 percent, can reverse the outcome. None of these are forecasts. They are values you set, so test a range and look at where the answer changes.
Because buying and selling costs are paid once, a short stay usually favors renting and a long stay favors buying. The first-year-ahead stat shows where your inputs cross over.
What is not modeled
Income tax effects such as the mortgage interest deduction, capital gains rules and taxes on investment gains are left out, as are mortgage insurance, refinancing, moving costs and non-financial factors like stability and flexibility. Property tax is a simple percent of each year's home value, which may not match how your area assesses. For the mortgage payment details, see the mortgage calculator, and for buying costs the closing cost calculator. To check what rent fits your income, use the rent affordability calculator.
Assumptions and limits
- Every growth and return rate is an assumption you choose. The defaults are examples, not market data or forecasts.
- The renter invests the down payment and buying costs on day one, and whoever pays less each month invests the difference, compounded monthly at the return you enter.
- Property tax and maintenance are percents of each year's home value. Insurance, HOA dues and renters insurance grow at the single yearly increase you enter.
- Net worth at each year end assumes the home is sold then, paying the selling costs and the remaining loan balance.
- Income taxes, mortgage insurance, refinancing, moving costs, rent control and the value of stability are not modeled. This is an estimate, not financial advice.
Frequently asked questions
Is it better to rent or buy?
It depends on how long you stay, local prices and rents, mortgage rates and what you assume about growth and investment returns. This tool shows which path has the higher net worth under your assumptions and when buying pulls ahead.
How long do I need to stay for buying to pay off?
The first-year-ahead stat answers that for your inputs. Buying and selling costs are large one-time expenses, so short stays often favor renting even when owning looks cheaper per month.
Why does the renter invest the down payment?
Because the cash used for a down payment and closing costs would otherwise be available to invest. Counting it keeps the comparison fair, since the owner's equity and the renter's portfolio both start from the same money.
What happens when rent is higher than the owner cost?
Then the owner is the one with extra monthly cash, and that difference is invested on the buyer's side instead. You can see this in longer stays, where rising rents eventually pass a fixed mortgage payment.
Can I trust the home value growth setting?
Treat it as a scenario, not a prediction. Try zero, a modest rate and a higher one, and look for where the winner changes. If the result flips with small changes, the decision rests on factors beyond this model.