Rent vs Buy Calculator

Renting versus buying is not a payment comparison. It is a net-worth comparison over a holding period, and this model runs both paths month by month and asks which person is richer on the day the buyer would sell. At month zero the buyer spends the down payment plus closing costs — 3 percent of the price by default. The renter, crucially, invests exactly that same sum, because it is money the renter did not have to hand over. That symmetry is what makes the comparison honest, and it is the step most rent-versus-buy arithmetic skips. Then, every month, both investment balances grow at the assumed return (5 percent a year by default, converted to a true monthly factor rather than divided by twelve). The owner’s cash outlay is assembled from the amortizing mortgage payment plus property tax, one twelfth of the annual insurance premium, maintenance, HOA dues, and PMI until the balance reaches the automatic termination point. Property tax and maintenance are charged on the current home value, so they rise with appreciation instead of staying frozen at the purchase price. Whichever path costs less that month invests the difference. At each anniversary, buyer wealth is the home value minus the loan balance minus selling costs — 6 percent by default — plus whatever the buyer managed to invest. Renter wealth is simply the renter’s investment account. The advantage is the difference, and the break-even year is the first year after which buying stays ahead for the rest of the horizon, not merely the first year it pokes above zero. Notice what is deliberately absent: mortgage principal is never treated as a cost. Paying down a loan moves money from one pocket to another, and calling it an expense while ignoring the renter’s opportunity cost is the classic way to rig this comparison in either direction. The insight worth internalising is that the answer is decided at the two ends, not in the middle. Roughly 9 percent of the price evaporates in transaction costs across a purchase and a sale, and none of it earns anything. That is why a seven-year horizon and a two-year horizon can give opposite answers on identical inputs. The second lever is the gap between assumed appreciation and assumed investment return, not either number alone. If your home grows at 3 percent and your portfolio at 5 percent, the renter is compounding faster on a smaller base while the buyer compounds slower on a leveraged one — and leverage is precisely why buying can still win. Nudge the investment return from 5 to 8 percent and watch the break-even year march outward; that single field moves the verdict more than the mortgage rate does. Rent growth is the counterweight, since the renter’s payment ratchets up annually while the owner’s principal and interest does not. Excluded on purpose: all tax effects. The mortgage interest deduction, property tax deductibility, the capital-gains exclusion on a primary residence and state treatment depend on jurisdiction, filing facts, whether you itemise, and future law, so building them in would fake precision. Also excluded are moving costs, rental insurance, and any assumption that you actually invest the difference — which most renters do not, and which is the largest real-world reason this model flatters renting. Before committing to a price, confirm it is serviceable with a house affordability calculator, price the loan itself with a mortgage calculator, and sanity-check your assumed return against an investment calculator.