How the Rent Vs Buy Calculator Works
Buying a home is often called "an investment" and renting "throwing money away", but the real answer depends on numbers. This calculator compares the two choices fairly. It asks: if you spent the same starting cash and the same monthly budget either way, which choice would leave you with more money after a number of years?
What you enter
- Home price, down payment and mortgage: the price, how much you pay up front, and the loan's rate and length.
- Property tax, insurance, maintenance and HOA: the running costs of owning. Maintenance is usually about 1% of the home's value each year.
- Closing and selling costs: fees when you buy, and agent and closing fees when you sell.
- Home price change: how fast you expect the home to gain (or lose) value each year.
- Rent, rent increase and renter's insurance: what renting costs, and how fast it rises.
- Investment return: what money earns when it is invested instead of spent.
- Years to compare: how long you expect to stay before selling.
How the buying side is worked out
Each month you pay the mortgage, property tax, insurance, maintenance and any HOA fee. If you put down less than 20%, the calculator also adds mortgage insurance until you owe 80% or less of the price. The mortgage payment uses the standard loan formula, where P is the loan, r is the monthly rate and n is the number of months:
payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
At the end of each year, the calculator imagines you sell. You get the sale price, less selling costs, less what you still owe on the loan.
How the renting side is worked out
The renter does not spend the down payment or the closing costs, so that money is invested from day one. Each month the renter pays rent and renter's insurance. Rent goes up by your chosen percentage each year.
Keeping it fair
Owning and renting rarely cost the same each month. So whoever pays less invests the difference. If renting is cheaper, the renter invests the extra. If owning is cheaper, the owner invests it. Both people then spend exactly the same total, and the only difference is how the money is used. The result is what each person would have at the end of each year.
A worked example
You look at a $400,000 home with 20% down and a 6.5% mortgage over 30 years, or renting a similar place for $2,200 a month. The home gains 3% a year, rent rises 3% a year and investments earn 5%. The mortgage payment is $2,023. With tax, insurance and upkeep, owning costs about $2,856 a month in year 1, against $2,217 for renting. Here is the year-by-year result:
| Year | Home value | Loan left | Buying | Renting |
|---|---|---|---|---|
| 1 | $412,000 | $316,423 | $70,857 | $104,557 |
| 3 | $437,091 | $308,535 | $102,330 | $130,079 |
| 5 | $463,710 | $299,555 | $136,332 | $156,088 |
| 7 | $491,950 | $289,332 | $173,101 | $182,504 |
| 9 | $521,909 | $277,694 | $212,901 | $209,225 |
| 10 | $537,567 | $271,284 | $234,029 | $222,665 |
Renting is ahead for the first eight years. Buying passes it in year 9, and after 10 years buying is ahead by about $11,364.
Chart: what each choice leaves you with
The same example, in thousands of dollars. Longer bars mean more money.
Year 1 Buy ██████████████ 71
Rent █████████████████████ 105
Year 3 Buy ████████████████████ 102
Rent ██████████████████████████ 130
Year 5 Buy ███████████████████████████ 136
Rent ███████████████████████████████ 156
Year 7 Buy ██████████████████████████████████ 173
Rent ████████████████████████████████████ 183
Year 9 Buy ██████████████████████████████████████████ 213
Rent █████████████████████████████████████████ 209
Year 10 Buy ████████████████████████████████████████████████ 234
Rent ████████████████████████████████████████████ 223
Why the break-even year matters
Buying starts with a big hit: closing costs, and selling costs at the end. It takes several years for the home's growth and the loan you pay off to make up for them. That is why staying only a few years usually favors renting, and staying a long time often favors buying. Try changing "Years to compare" to see it.
What changes the answer most
- How long you stay. Short stays rarely make up for the fees of buying and selling.
- Home price growth. With 0% growth in the example above, renting wins clearly.
- Mortgage rate. A higher rate raises the monthly cost and pushes the break-even later.
- The rent-to-price ratio. If rent is low compared with the price of a similar home, renting is hard to beat.
- Investment return. Higher returns help the renter, who invests the down payment.
What this calculator does not include
- Tax effects, such as the mortgage-interest deduction or capital gains on a sale.
- Changes in your income, family, or where you live.
- Big repairs that cost more than the yearly maintenance estimate.
- The things money cannot count: stability, freedom to move, or the choice to renovate.
- Market ups and downs. Growth and returns are steady averages here, and real years vary.
This tool gives an estimate for general information only. It is not financial advice. The results depend on the assumptions you enter, which no one can know in advance.