Rent vs Buy Calculator
Compare the cost of buying a home versus renting over a chosen holding period, including mortgage payments, down payment, and a 2%/year ownership-cost assumption for tax, insurance, and maintenance. A positive result means buying costs more total cash than renting over your time horizon; a negative result means renting costs more.
About this calculator
The model adds up total cash outflows for both scenarios over the holding period and returns the difference. The formula: Buy Cost = (Mortgage Payment over 30-yr fixed) × Years × 12 + Down Payment + Home Price × 0.02 × Years − Rent Cost, where Mortgage Payment is the standard amortising payment on (Home Price − Down Payment) at the entered rate over 360 months, and the 0.02 × Years term is a rule-of-thumb ownership cost (1–2% property tax + 0.5% insurance + 1–2% maintenance, totaling ~2–4%/yr; the calculator uses 2% conservatively). Rent Cost = Monthly Rent × Years × 12. Variables: Home Price is purchase price; Monthly Rent is what equivalent housing costs to rent; Down Payment is cash out at closing; Mortgage Rate is annual interest on a 30-year fixed; Years to Stay is the holding horizon. Edge cases: very short holding periods (1–3 years) almost always favour renting because transaction costs at sale alone consume 6–8% of price; very long horizons (15+ years) usually favour buying because rent inflation outpaces a fixed mortgage payment. The model intentionally ignores appreciation, mortgage principal paid (forced savings), tax deductibility of mortgage interest, opportunity cost of the down payment, and rent inflation — all of which can swing the answer dramatically. Treat the output as a cash-flow comparison, not a wealth comparison; for the latter, add back equity built and appreciation realized.
How to use
Example 1 — Short 5-year hold, equal-ish costs. Home price $400,000, monthly rent $2,200, down payment $80,000, mortgage rate 6.5%, years to stay 5. Mortgage payment on $320,000 at 6.5%/30y ≈ $2,022/mo. Buy outflows: 2,022 × 60 + 80,000 + 400,000 × 0.02 × 5 = 121,320 + 80,000 + 40,000 = $241,320. Rent outflows: 2,200 × 60 = $132,000. Difference (buying − renting) ≈ $109,320 — buying costs ~$109k more cash over 5 years (before counting equity gained and any appreciation). Verify ✓. Example 2 — Long 15-year hold, buying wins on cash. Same home price $400k, monthly rent $2,200, down payment $80k, rate 6.5%, years 15. Mortgage payment same $2,022. Buy outflows: 2,022 × 180 + 80,000 + 400,000 × 0.02 × 15 = 363,960 + 80,000 + 120,000 = $563,960. Rent outflows: 2,200 × 180 = $396,000. Difference ≈ +$167,960 — buying still costs more raw cash, but you now own significant equity (about $86k principal paid down) and any appreciation is yours. Verify ✓. Note rent stayed flat at $2,200 in this simple model — real-world rent typically rises 2–4%/yr, which would tip the comparison much more in buying's favour.
Frequently asked questions
Why does this calculator usually show buying as more expensive?
Because it intentionally measures cash outflow only, not wealth. Every dollar of mortgage principal is counted as a cost even though it accumulates as your equity; appreciation is ignored entirely; and rent inflation is held flat even though real-world rents typically rise 2–4% per year. In a true wealth comparison (final net worth after the holding period), buying usually wins for any horizon over 5–7 years in stable markets — the equity built plus appreciation usually exceeds the cash-flow disadvantage. Treat this calculator's positive number as 'how much more cash you'll spend' rather than 'how much money you'll lose.' For the full wealth picture, subtract equity built and projected appreciation from the difference, or use a buy-vs-rent calculator that explicitly models both wealth paths (NYT's well-known calculator is the gold standard here).
What is the rule of thumb for when buying is better than renting?
The classic guideline is the 5-year rule: if you will live in the home less than 5 years, renting almost always wins because transaction costs at sale (5–8% agent commissions + closing costs + moving) eat any appreciation gained. Beyond 5 years, buying tends to win because the fixed mortgage payment becomes increasingly favourable versus inflating rent and you build equity that compounds with the property. The price-to-rent ratio (home price / annual rent) is a useful market-level test: under 15 strongly favours buying, 15–20 is neutral, 20–25 leans toward renting, above 25 (San Francisco, NYC, parts of LA) strongly favours renting purely on math. Combine the 5-year rule and the price-to-rent ratio: if you'll stay 5+ years AND the ratio is under 20, buying is likely the right call; otherwise rent and invest the savings.
What are the most common mistakes in rent-vs-buy analysis?
The biggest is using today's rent as flat for the whole holding period — rents historically rise about 3% per year and have outpaced inflation in many markets, so a 20-year flat-rent assumption massively overstates the rent scenario's appeal. The second is forgetting the opportunity cost of the down payment: $80k sitting in home equity earns property appreciation; the same $80k in an index fund earns the equity-market return, which is comparable or higher. The third is ignoring tax: mortgage interest may be deductible (less so since the 2017 TCJA capped it at $750k loan and raised the standard deduction), but rent is not — though the gap has narrowed significantly. The fourth is overlooking the hidden costs of homeownership: HOA dues, special assessments, lawn/snow service, broken appliances, and time spent maintaining the property. The fifth is treating "owning your home" as automatically a good investment — it concentrates a huge amount of net worth into a single illiquid asset in a single geography, which is the opposite of diversification.
When should I NOT use this calculator?
Skip it for very short holds (under 2 years) where transaction costs dominate everything else — just rent. Avoid it for high-cost-of-living markets where price-to-rent ratios are over 30 (parts of San Francisco, Manhattan) — the math is so lopsided toward renting that any rent-vs-buy calculator confirms the obvious. Do not use it for investment property analysis (buying to rent out) where the relevant question is cash flow and cap rate, not your personal housing decision. Skip it for second-home or vacation-home decisions where the value is consumption, not investment. And do not rely on it as the only input — qualitative factors (stability, family planning, neighbourhood, school district, job mobility) often matter more than the marginal financial difference for primary-residence decisions.
How do appreciation and equity build-up change the conclusion?
This calculator ignores both, which is conservative for buying. In a typical 3.5% appreciation environment, a $400k home grows to about $565k in 10 years — a $165k gain that flows entirely to the owner (minus selling costs and any capital gains tax, though primary residences get a $250k/$500k exclusion in the US). At the same time, mortgage principal paid down over 10 years on a $320k loan at 6.5% is roughly $52k. Together that is $217k of wealth created that the calculator does not show. Subtract that $217k from the calculator's "buying costs more" output and the picture often flips entirely. To do a fair wealth comparison, also subtract the opportunity cost of the down payment if invested in stocks for the same period: $80k compounding at 7% for 10 years grows to $157k, a $77k gain the renter would capture. Net, in most stable markets over 7+ years, buying produces more wealth — but it also concentrates risk and reduces flexibility.