How this rent vs buy calculator decides
Comparing rent with a mortgage payment is misleading: owners also pay property tax, insurance, maintenance, closing costs and selling costs, but they build equity and may benefit from rising home prices. Renters pay none of those extras, and can invest the money they did not put into a down payment. A fair comparison asks: after the same number of years, who has more money?
This calculator follows both paths month by month:
- Buyer: pays the down payment and closing costs upfront, then the mortgage, property tax and maintenance (both as a percentage of the home's current value), insurance and HOA. At the end the home is sold, selling costs are paid and the remaining loan is repaid. What is left is the buyer's equity.
- Renter: invests the down payment and closing costs on day one, pays rent that rises every year, and each month invests the difference whenever owning would have cost more.
- When renting costs more than owning, the buyer invests the difference instead, so both sides spend exactly the same amount each month.
Why the number of years matters most
Buying has large one-time costs: closing costs of a few percent when you buy and often 5% to 6% in agent fees and other costs when you sell. Spread over two years they are painful; over ten years they fade. That is why the break-even line is often the most useful result. If you are not confident you will stay that long, renting is usually the safer financial choice.
Assumptions that move the result
- Home price growth vs investment return: if homes appreciate faster than the renter's investments grow, buying wins sooner, and vice versa.
- Price-to-rent ratio: divide the home price by a year of rent for a similar home. Higher ratios generally favor renting.
- Maintenance: 1% of the home's value a year is a common rule of thumb; older homes often need more.
- Mortgage rate: higher rates raise the cost of owning and push the break-even point further out.
What is left out
To stay simple and avoid tax rules that change, the calculator ignores income taxes: the mortgage interest deduction (which only helps if you itemize), the capital gains exclusion on a primary home, and taxes on the renter's investment gains. It also assumes a down payment of at least 20%, so there is no PMI; for smaller down payments, check the full payment with the mortgage calculator with PMI. And it cannot price the non-financial side: the stability and freedom to renovate of owning, or the flexibility of renting.
Frequently asked questions
Is it cheaper to rent or buy a house?
It depends mostly on how long you stay, local prices compared with rents, mortgage rates and home price growth. Buying often wins over longer periods because one-time buying and selling costs get spread over more years.
How long do I need to stay for buying to make sense?
The break-even point is commonly somewhere around five to ten years, but it can be shorter or much longer. The calculator shows the break-even year for your numbers.
What is the 5% rule for renting vs buying?
A shortcut that estimates the yearly unrecoverable cost of owning as about 5% of the home's value (property tax, maintenance and cost of capital). If annual rent is below that amount, renting may be cheaper.
Does this include the mortgage interest tax deduction?
No. Many households take the standard deduction and get no benefit from it, and tax rules change, so taxes are left out of this simple comparison.