How it works
The calculator runs two scenarios side by side, one month at a time, for as many years as you plan to stay.
The buying scenario
- On day one you pay the down payment plus closing costs.
- Each month you pay principal and interest, M = P × r(1 + r)n / ((1 + r)n − 1), plus property tax and maintenance (both a percentage of the home's current value), insurance and any HOA dues.
- The home's value grows by your appreciation rate, compounded monthly.
- At the end you sell the home. Your equity is value × (1 − selling cost %) − remaining mortgage.
The renting scenario
- The renter keeps the down payment and closing costs and invests them on day one.
- Each month the renter pays rent plus renters insurance. Rent rises once a year by your rent-increase rate.
- When owning costs more than renting in a given month, the renter invests the difference. When renting costs more, the buyer invests the difference. That way both paths spend exactly the same amount of money, which makes the comparison fair.
- Investments grow at your investment return, compounded monthly.
The comparison
Buy net worth = home equity after selling costs + buyer's investments
Rent net worth = renter's investments
The break-even year is the first year in which buying leaves you with at least as much as renting. Income taxes are ignored. That includes the mortgage-interest deduction, which most households no longer itemize, as well as taxes on investment gains and the home-sale exclusion.
Worked examples
$400,000 home, 20% down, 6.5% for 30 years, staying 10 years, vs. $2,200 rent
Assumptions: 1.1% property tax, $1,800 homeowners insurance, $15.00/mo renters insurance, 1% maintenance, 3% appreciation, 3% closing costs, 6% selling costs, 3% annual rent increases and a 6% investment return. Buying needs $92,000.00 up front and a $2,022.62 principal-and-interest payment. After 10 years, buying leaves you with $234,028.95 and renting leaves you with $241,597.48, so renting is ahead by $7,568.53. Buying does not break even within 10 years. Stay 15 years and buying wins by $27,658.72 (break-even in year 12).
$350,000 home vs. $2,600 rent, staying 7 years
Same other assumptions. Here rent is high compared with the price, a price-to-rent ratio of 11.2. After 7 years buying leaves $177,006.36 against $121,042.24 for renting, so buying comes out ahead by $55,964.13, with break-even in year 4.
What drives the rent-vs-buy answer
How long you stay. Buying comes with large one-time costs: closing costs going in and roughly 6% in agent and transfer costs going out. Those costs need years of appreciation and principal paydown to recover. In our main example buying is behind after 10 years by $7,568.53, but after 15 years the result is ahead by $27,658.72. A common rule of thumb says buying rarely makes financial sense if you will move within about five years.
Home price growth. Appreciation is the biggest swing factor. Raising it from 3% to 4% a year in the main example changes the 10-year gap from -$7,568.53 to $37,559.51 (positive means buying wins). Local markets vary widely, and prices can fall, so test a pessimistic case too.
What the renter earns on savings. The rent path only wins if the renter really invests the down payment and the monthly difference. If you would spend that money instead, buying acts as forced savings and will usually look better than this calculator shows. A higher return helps renting. At an 8% return the 10-year gap becomes -$51,132.98.
The price-to-rent ratio. Divide the home price by a year of rent for a comparable home. In the main example that is $400,000.00 ÷ $26,400.00 = 15.2. Ratios below about 15 tend to favor buying, and ratios above about 20 tend to favor renting, but run the numbers for your situation.
Interest rates. A higher mortgage rate raises the monthly cost of owning and slows equity growth in the early years, when most of each payment is interest.
Costs people forget when buying
- Maintenance and repairs. Budgeting 1%–2% of the home's value each year is common. Roofs, HVAC systems and water heaters all wear out eventually.
- Property tax increases. Reassessments can raise your bill as values rise. This calculator ties tax to the home's current value.
- Insurance. Premiums have risen quickly in many states, especially in areas exposed to wildfire, hurricanes or hail.
- PMI. With less than 20% down on a conventional loan you will usually pay private mortgage insurance, which this calculator does not include. Add it to the HOA field as a rough stand-in.
- Furnishing and moving. A larger home often means one-time spending that a renter avoids.
Non-financial factors
Owning gives you stability, freedom to renovate and protection from rent increases. Renting gives you flexibility, no repair bills and the ability to move for a job without selling a house. A spreadsheet can't put a price on those, so treat the result as one input to your decision. Before buying, check what you can comfortably afford with our house affordability calculator.
Frequently asked questions
Is it better to rent or buy a house?
It depends on how long you will stay, local prices compared with rents, mortgage rates, expected appreciation and whether you would invest the money you save by renting. Buying usually wins over long periods. Renting often wins if you may move within a few years.
What is the break-even point in rent vs. buy?
It is the number of years after which the net worth from buying (home equity after selling costs, plus any investments) catches up with the net worth from renting and investing. Before that point, the one-time costs of buying and selling outweigh the gains.
What is the 5% rule for rent vs. buy?
A shortcut estimates the yearly unrecoverable costs of owning as about 5% of the home value: roughly 1% property tax, 1% maintenance and 3% cost of capital. If annual rent is below that amount, renting may be cheaper. This calculator does a fuller month-by-month comparison.
Does the calculator include the mortgage interest tax deduction?
No. Since the standard deduction roughly doubled in 2018, most homeowners don't itemize, so the deduction doesn't help them. If you do itemize, buying would look somewhat better than shown.
Why does the renter invest the difference?
To compare like with like. Both scenarios spend the same total cash each month. Whichever path is cheaper invests the savings, so the result reflects the true opportunity cost of each choice.
What appreciation rate should I use?
Over long periods U.S. home prices have risen roughly in line with or a little above inflation, about 3%–4% a year nationally, but individual markets vary a lot and prices can fall. Try a few rates to see how sensitive your answer is.
Are selling costs really 6%?
Agent commissions, transfer taxes and other closing costs for sellers have often totaled 5%–10% of the sale price. Commission practices have changed in recent years, so check what is typical in your area and adjust the field.