Rent vs buy calculator

• Buying is charged with the full cost, not just the mortgage: closing costs up front, property tax, insurance, maintenance, and selling costs at the end.
• Renting is charged rent plus expected rent increases, and credited with the investment return on the down payment you did not spend.
• Only the principal portion of a mortgage payment builds equity. Early payments are mostly interest, which is a cost, not savings.
• The output is the break-even year: how long you must stay before buying comes out ahead.

On a $400,000 home with 20% down, closing costs run around $10,000 and selling costs around 6%, or $24,000 at the same price. That is $34,000 of pure transaction cost before any appreciation. At 3% annual appreciation the home gains about $12,000 a year, so it takes roughly three years just to cover the round trip, and longer once you count maintenance and the return the $80,000 down payment would have earned invested. Under about five years, renting usually wins. This is why the advice exists, and also why it breaks whenever rents or appreciation are unusual.

• Home appreciation is a steady annual rate. It is not; it is regional and lumpy, and it can be negative for years.
• Maintenance is a percentage of home value, commonly 1% a year. An older home will cost more, and it arrives as one large bill rather than a smooth monthly figure.
• The invested down payment earns a steady return, with no tax on the gains.
• Mortgage interest deduction is not modelled, and it only matters if you itemize, which most households no longer do.

Finance Quest is educational. It is not financial advice, and no calculator here knows your full situation.

Rent of $2,000 against a mortgage of $2,100 looks close to a tie, and it is not a comparison at all. The mortgage payment excludes property tax, insurance, maintenance and the closing costs on both ends. Once those are counted, the true monthly cost of owning that home is frequently 40 to 50% above the mortgage payment. The right comparison is total cost over your actual time horizon, which is what this calculator runs.

How long do I need to stay for buying to make sense?

Often around five years, but it depends entirely on your rent, local prices and appreciation. In an expensive market with cheap rent it can be well over a decade. Run your own numbers rather than trusting the rule.

Is renting throwing money away?

No. Rent buys housing for the month, the same way mortgage interest, property tax, insurance and maintenance buy housing and build nothing. Only the principal portion builds equity, and in the early years that is a small slice of the payment.

Does this account for the down payment being invested?

Yes, and it matters more than most comparisons admit. $80,000 sitting in a house is $80,000 not compounding in an index fund. Leaving that out is the most common way a rent-versus-buy comparison is rigged toward buying.

What if rents keep rising fast?

That shifts the answer toward buying, because a fixed-rate mortgage freezes the largest part of your housing cost while rent keeps climbing. Set the rent growth rate to what your area is actually doing and watch the break-even year move.

• mortgage
• rental property
• compound interest