Why use this calculator
Most rent versus buy comparisons are rigged, usually by accident. They set a mortgage payment against a rent payment, ignore the closing costs at both ends, forget that maintenance and property tax never stop, and treat the down payment as though it would have earned nothing sitting in an index fund.
Each of those omissions pushes the answer towards buying. This calculator puts both paths on equal cash flow: whichever option costs less in a given month, the difference is invested at the return you specify, so the comparison is between two net positions rather than between two monthly bills.
It then reports the break-even year, which is the only output that really answers the question, because buying is almost always worse over three years and almost always better over twenty. Figures are United States oriented, using dollar amounts, county property tax rates and typical American closing and selling costs.
How to use it
- Enter the purchase price you expect to agree and the cash down payment you will put in at settlement.
- Take the mortgage rate from your loan estimate, or use the current Freddie Mac survey average if you have not applied yet, and set the loan term to 30 or 15 years.
- The years you expect to stay is the most important entry on the page, so be honest about your job, your family plans and whether you might move city.
- Set buying and selling costs as a single round-trip percentage, since half is applied at purchase and half at sale.
- Enter what an equivalent home rents for today and how fast rents rise locally.
- Then set expected appreciation, your county property tax rate, an annual insurance premium, a maintenance percentage and the return a renter would earn on invested cash.
What each result means
- Monthly mortgage payment
- Principal and interest only, calculated from the loan amount, rate and term. It excludes tax, insurance and upkeep.
- Total monthly cost of owning in year 1
- The real first-year monthly outlay: mortgage plus property tax, insurance and maintenance, which is what to compare against rent.
- Cash needed up front to buy
- Down payment plus the purchase half of your round-trip transaction costs, all of it needed on settlement day.
- Monthly rent in the final year
- What the same home costs to rent in the last year of the period after annual increases compound.
- Total rent paid over the period
- Every rent dollar across the whole period, none of which builds any asset for you.
- Total cash spent owning
- Up-front cash plus every mortgage, tax, insurance and maintenance dollar paid across the period.
- Home value at the end
- The projected sale price after compounding your assumed appreciation rate over the period.
- Mortgage balance at the end
- What you still owe the lender when you sell, which comes straight out of the sale proceeds.
- Equity after selling costs
- Sale price less agent commission and closing costs less the remaining loan. This is the cash you walk away with.
- Owner's net position
- Equity plus any investments made in months when owning was cheaper than renting. The honest measure of where buying leaves you.
- Renter's net position
- The down payment and closing costs invested from day one, plus every month renting was cheaper, compounded at your assumed return.
- Better option
- Which path leaves you wealthier over the years you expect to stay, and by how much, after all costs on both sides.
- Starting rent at which both tie
- The monthly rent today that would leave the owner and the renter equally well off at the end of your stay, with every other input unchanged. If comparable homes rent for more than this, buying comes out ahead.
- Break-even year
- The first year owning overtakes renting. Move before it and buying almost certainly cost you money.
The formula
Each month the model charges the owner the amortised mortgage payment, one twelfth of property tax and maintenance on the current home value and one twelfth of the insurance premium, while charging the renter that month's rent. Whichever party pays less invests the difference at the monthly equivalent of the investment return.
Owner net position = home value grown at the appreciation rate, less selling costs, less the remaining mortgage balance, plus anything they invested
Renter net position = the down payment and purchase costs plus every monthly saving, compounded at the same return
The break-even year is the first year the owner's net position is at least equal to the renter's.
How this number is used in practice
The single number that decides this question is how long you stay. Buying carries a large fixed toll at both ends: two to five percent of the price in closing costs going in, and five to six percent in agent commission and fees coming out.
That round trip has to be earned back before ownership is even level with renting, which is why the common advice to buy only if you will stay at least five to seven years exists. If your job might move you, if a relationship is new, or if you are one promotion away from another city, extend the years field honestly rather than optimistically. A three-year purchase in a flat market is usually a straightforward loss.
The second thing people get wrong is the down payment. Putting $70,000 into a house means not putting it into anything else, and over ten years at a five percent return that money would have become roughly $114,000 on its own. Any comparison that ignores this makes buying look far better than it is.
It is also why a falling mortgage rate changes the answer more than a falling price: the rate sets the monthly cost of the borrowed part, while the down payment's opportunity cost sits there regardless. Run the calculator twice with different return assumptions and you will see how much of the result depends on that one input.
Finally, the non-financial side rarely appears in a calculator and still matters. Owning gives you security of tenure, the right to renovate and a fixed principal and interest payment that inflation erodes each year, while renting gives you mobility, no exposure to a roof replacement or an assessment, and no transaction cost when your life changes.
If this calculator says the two are within a few thousand dollars over your time horizon, the financial question is genuinely a tie and you should decide on those grounds instead.
Worked examples
$350,000 home, $70,000 down at 6.5% over 30 years against $2,000 rent, staying 10 years
The owner ends on $214,183 against the renter's $195,222, so buying is ahead by $18,960 and break-even arrived in year 8.
The same purchase but staying only 3 years
The owner is left with $97,188 against the renter's $117,158, a shortfall of $19,970 caused almost entirely by round-trip transaction costs.
A stronger market: 5% appreciation, 5% rent growth and a 5.5% mortgage rate over 15 years
The owner ends on $566,113 against the renter's $204,175, so buying is ahead by $361,938 and breaks even in year 3.
When people use it
- Deciding whether to buy a first home or keep renting for another year or two
- Working out the minimum number of years that makes a purchase worthwhile in your market
- Testing how much a half-point change in the mortgage rate moves the decision
- Comparing selling and renting in a new city against keeping and letting a current home
- Showing a partner or a family member why transaction costs make a short stay expensive
Tips
- The years you stay matters more than the price, the rate or the appreciation rate. Change it first and watch everything else move.
- Budget 2% to 5% of the price in closing costs going in and 5% to 6% in agent commission and fees coming out.
- Maintenance really does average around 1% of value a year over a long hold. Roofs, heating systems and water heaters all have finite lives.
- Compare rent against the full monthly cost of owning, not just the mortgage. Tax, insurance and upkeep are often a third of the total.
- Below a 20% down payment expect private mortgage insurance, which this model does not add. Include it in your own monthly comparison.
- Set the investment return honestly. If you would not actually invest the difference, the renter's case is weaker than the model shows.
- If the two sides land within a few thousand dollars, stop optimising and decide on mobility, security and how much you want to control the place you live.
What it assumes, and where it stops being accurate
- Private mortgage insurance is not modelled, so a down payment below 20% understates the cost of owning by roughly 0.5% to 1.5% of the loan each year.
- Homeowners association or condominium fees are excluded and can add several hundred dollars a month in many markets.
- Federal tax treatment is ignored. The mortgage interest and state and local tax deductions only help if you itemise, which most households no longer do.
- Rent and home values are assumed to grow smoothly at the rates you enter. Real markets move in steps and can fall for several years at a time.
- The mortgage is a fixed-rate loan held to sale, with no refinancing, no offset and no extra repayments.
- Utilities, moving costs, renters insurance, security deposits and renovation spending are all excluded from both sides.
Terms used on this page
- Closing costs
- Lender, title, appraisal and government fees paid at settlement, typically two to five percent of the purchase price.
- Home equity
- The current market value of the property minus the outstanding mortgage balance, before any selling costs.
- Opportunity cost
- The return given up on money committed to one use, such as a down payment that could otherwise have been invested.
- Private mortgage insurance
- Insurance that protects the lender when the down payment is below twenty percent, charged to the borrower monthly.
- Break-even horizon
- How long you must own before the wealth from buying overtakes the wealth from renting and investing the difference.
Questions people ask
- How many years do I need to stay for buying to win?
- In a typical American market with moderate appreciation the crossover usually falls between five and eight years, which is what this calculator reports as the break-even year. The exact figure depends on your round-trip transaction costs, the gap between rent and the full cost of owning, and the return a renter would earn. Very high rents or strong appreciation can pull it under four years; a flat market can push it past twelve.
- Why does the calculator include an investment return for the renter?
- Because the down payment is not free. Money placed into a house cannot also sit in an index fund, and any comparison that ignores that makes buying look artificially good. The model gives the renter the down payment and closing costs from day one, then adds the difference whenever renting costs less per month, and compounds the lot at the return you choose. Set it to zero to see the comparison without opportunity cost.
- Does this include the mortgage interest tax deduction?
- No, deliberately. Since the standard deduction was raised, the large majority of American households take it rather than itemising, so mortgage interest delivers them no federal benefit at all. If you do itemise and are in a high bracket, the deduction can be worth a meaningful amount. Treat it as a bonus on top of this result rather than something built into the comparison.
- What about private mortgage insurance?
- It is not modelled. If your down payment is under twenty percent of the price, expect private mortgage insurance of roughly 0.5% to 1.5% of the loan balance a year until you reach around twenty percent equity. On a $280,000 loan that is between $1,400 and $4,200 a year, which shifts the break-even year noticeably later. Add it to your own monthly ownership figure before deciding.
- How much should I assume for maintenance?
- One percent of the home's value a year is the standard planning figure and holds up reasonably well over a long hold. Newer homes cost less in the first few years and more later, older homes are lumpier, and condominiums shift much of the cost into an association fee instead. Whatever figure you use, do not set it to zero, because roofs, heating systems and water heaters all reach the end of their lives eventually.
- Is buying always better than renting in the long run?
- No. It usually is over long periods in markets where rents rise steadily, but it depends on price growth, the rate you borrow at and what the alternative investment earns. In expensive coastal markets where the rent to price ratio is very low, renting and investing the difference has beaten owning across long stretches. The calculator answers the question for your own numbers rather than for the national average.
Use this with
Rent vs. Buy Calculator answers one part of the question. These pick up where it stops: Mortgage Calculator, Home Affordability Calculator, Rent Affordability Calculator and Property Tax Calculator.
Where these figures come from
Figures and rules on this page follow United States federal rules.
- CFPB: Owning a Home. Closing costs, escrow and the true cost of a mortgage
- Freddie Mac: Primary Mortgage Market Survey. Weekly average 30-year and 15-year mortgage rates
- Consumer Financial Protection Bureau. Independent federal guidance on borrowing, saving and housing
Rent vs. Buy Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.