Rent vs Buy Calculator

How to use the rent vs buy calculator

Enter the price of the home you are considering and the rent you would pay instead, then set the down payment, the mortgage rate you want to test, and how many years to model. Everything else sits behind the two assumption panels and is filled in already so the tool never quietly ignores a cost.

The result is a single number: the break-even year, the first year at which buying has cost less in total than renting. It is not a verdict on your situation, because it is arithmetic performed on figures you supplied, and several of those figures are things nobody can know in advance.

The comparison only works because both households spend the same cash. The buyer puts $88,000 in on day one, being the $80,000 down payment and $8,000 of buying costs, then pays the mortgage and every running cost. The renter starts with that same $88,000 invested and adds the difference in monthly outlay to it each year.

That construction leaves exactly one thing to compare: what each side is left holding. The owner holds sale proceeds, which is the home value less selling costs less whatever mortgage is still outstanding. The renter holds an invested balance. Net cost is the shared cash out minus that holding.

Year one is where buying looks worst and it is not close. The default run shows owning at a net cost of $50,013.10 against $22,180.00 for renting, because the down payment and buying costs are already spent while almost none of the early mortgage payment reduces the balance. That gap closes slowly and then all at once.

The years slider is worth sweeping before anything else. A break-even year of 6 sounds decisive until you notice that it becomes 10 at a 7 percent assumed investment return, and vanishes entirely at 8 percent, with every other field untouched. The reference table below runs exactly that experiment across six assumptions.

What actually moves the break-even year

One assumption dominates, and it is the least visible one: what the money not tied up in a house would have earned instead. It is the only field that can remove the break-even year altogether. Holding everything else at the defaults and changing nothing but that rate produces the following.

The second biggest lever is the assumed change in house value, and it is the one nobody can know. At 3 percent a year the break-even lands in year 6. At 0 percent it moves to year 21. At 5 percent it arrives in year 3. That is a fifteen year spread produced by an assumption, not by anything you can verify today.

The ownership costs people leave out

A mortgage payment is not the cost of owning a home, and comparing it against rent is the mistake this tool exists to prevent. On the default run the principal and interest come to $1,918.56 a month, while the true year one cost of owning is $2,768.56 a month. Here is where the other $850 goes.

Two more costs sit outside the monthly figure entirely. Buying costs at 2 percent add $8,000 on the way in, and selling costs at 6 percent come out of the sale price on the way out. The exit cost is the reason a short stay rarely breaks even: at 0 percent selling cost the crossing is year 2, and at 10 percent it is year 9.

The formula, worked line by line

The model holds one thing fixed so the comparison cannot cheat: both households spend the same cash. The buyer commits the down payment and the buying costs on day one, then pays principal, interest, property tax, insurance and maintenance. The renter starts with that identical upfront sum invested and adds the yearly difference in outlay to it.

Because total cash out matches to the cent every year, the only difference between the two sides is what each is left holding. For the owner that is sale proceeds after selling costs and the mortgage payoff. For the renter it is the invested balance. Net cost is shared cash out minus that holding, and the break-even year is the first year the owner net cost is the lower of the two.

upfront            = down payment + buying costs
owning, year y     = principal + interest + property tax + insurance + upkeep
renting, year y    = rent × (1 + rent growth)^(y − 1) + renters insurance
renter balance     = balance × (1 + return) + (owning year − renting year)
owner holding      = home value × (1 − selling cost%) − mortgage balance
net cost           = total cash paid − what that side is holding
break-even year    = first y where net cost of owning ≤ net cost of renting

What the model deliberately does not do

It does not model the mortgage interest deduction, capital gains treatment on a primary residence, private mortgage insurance below a 20 percent down payment, HOA dues, or rent that jumps by a lease rather than by a smooth annual rate. Each of those is real, and each varies so much by person and place that a single default would be a fiction.

Questions people ask