Rent vs Buy Calculator

Disclaimer: This calculator is provided for educational and estimation purposes only and does not constitute formal financial advice.

The question is not which is cheaper this month

Rent vs buy is usually argued with monthly costs: the mortgage payment versus the rent, and whichever number is lower wins. That comparison is incomplete in two ways that matter more than the payment itself.

First, the buyer keeps something at the end. Every mortgage payment builds equity, and the home usually appreciates, so a buyer walks away from year ten with an asset — not nothing. Second, the buyer’s up-front money has an opportunity cost. The down payment and closing costs, invested instead, would grow at whatever the market returns. A fair comparison has to put the same cash in both columns.

That is what this calculator does. It tracks two paths side by side over your holding period:

• The buyer spends the down payment and closing costs up front, pays a monthly ownership cost — principal and interest, property tax, home insurance, PMI when the down payment is thin, and maintenance — and ends with the home’s value minus the remaining loan balance and selling costs.
• The renter invests the same up-front cash, pays rent that grows each year, and every month either invests the difference between the ownership cost and the rent, or draws it out when rent is the higher number.

Whichever path has more net wealth at the end of the horizon is the cheaper way to live over that horizon — and the year ownership’s net wealth passes renting’s is the break-even year.

The buyer’s side

With V₀ the purchase price, D the down payment, C closing costs, M the monthly ownership cost, and B_t the amortizing loan balance at year t, buying leaves you with:

where V_t is the home’s value after appreciation and s is the selling cost rate. Selling costs matter even when you have no intention of selling: they are what the wealth is actually worth if the comparison ends, and they are why owning always starts in a hole. On the default scenario, buying a $400,000 home with 10% down spends $40,000 down plus $12,000 of closing costs up front, and after paying a 6% selling cost the home is worth $16,000 of net wealth in year zero — against the renter’s $52,000, which is the same $52,000 of up-front money simply invested.

The renter’s side

The renter’s portfolio P starts with that same up-front cash and grows at the investment return i, fed every month by the difference between the ownership cost and the rent R_m:

Note that the monthly difference can be negative. On the default scenario the ownership cost of $3,350 exceeds the $2,200 rent, so the renter’s portfolio does not get fed much at the start — but it also does not get drained, and it is compounding on a $52,000 base the whole time.

The default scenario: renting wins on paper

The table shows the two paths on the calculator’s default inputs — a $400,000 home, 10% down, a 30-year loan at 6.5%, $2,200 rent growing 3% a year, 3.5% appreciation, and a 7% investment return:

Ownership closes the gap steadily — from $36,000 behind in year zero to $27,115 behind in year ten — but it never quite catches up within the default horizon. The amortizing loan balance is still $305,194 in year ten; the home has appreciated by $167,338, but the buyer only gets to keep what is left after the loan and the selling costs.

What flips the answer

Three inputs do most of the work, and they are worth understanding before you trust any conclusion.

The holding period. The longer you stay, the more the amortizing loan shrinks and the more appreciation accumulates, while the renter’s advantage from the cheap early rent fades as rent grows. Extend the same default scenario to 15 years and owning ends with $373,914 against renting’s $377,838 — still behind, but by a rounding error’s worth of the original gap.

Appreciation. Raise home appreciation from 3.5% to 4.5% and ownership overtakes renting in year 7, ending the 30-year horizon with $1,446,734 of net wealth against the renter’s $841,752. Home appreciation is the single most sensitive assumption in the whole comparison, which is why the calculator treats it as an input rather than a default you should trust.

The rent you start from. A renter paying $3,000 a month instead of $2,200 is feeding nothing into the portfolio at all — the ownership cost is barely above the rent — and ownership overtakes as early as year 4. In high-cost rental markets, the math tips hard toward buying, which is exactly what you would expect.

None of this says what your local market will do. It says which assumption the outcome depends on, so you can argue about the right number instead of the wrong question.

The honest caveats

The model makes three simplifications worth naming. PMI is held flat at 0.75% of the loan for the whole period, when real policies usually fall away once equity passes 20% — so thin-down-payment scenarios slightly overstate ownership’s cost. The mortgage payment calculator models that same 20%-equity PMI cutoff at origination, and the mortgage refinance break-even calculator sizes whether refinancing away from PMI early pays back. For the budget side of the same decision — what share of take-home pay the resulting payment actually consumes — the 50/30/20 budget calculator sets the housing slice, and the net worth calculator tracks the equity that survives once the loan and selling costs are netted out. Maintenance is a flat 1% of the purchase price rather than the lumpy reality of a new roof or furnace. And the renter’s portfolio return and the home’s appreciation are assumed constant, when both are volatile in practice. None of these change the shape of the answer; they change the margin. If your scenario is close, the honest conclusion is that the two paths are close.