Rent vs Buy Calculator Explained

What a rent-vs-buy calculator actually compares

The honest version of the rent-vs-buy question is not "is rent cheaper than a mortgage payment?" — that comparison almost always flatters renting, because it ignores principal repayment and home appreciation, and almost always flatters buying, because it ignores maintenance, transaction costs, and the opportunity cost of the down payment. A useful calculator has to put both sides on the same footing. The rent vs buy calculator does that by running a month-by-month simulation where both households face the same housing budget; whichever scenario costs less in a given month invests the difference at the chosen return rate. Net wealth is the scoreboard, and the result is the break-even year — the first year buying produces more wealth than renting.

This is the same equalised-cash-flow methodology popularised by the long-running New York Times "Is It Better to Rent or Buy?" calculator and described in textbook form by Brueggeman and Fisher in Real Estate Finance and Investments. It is the only honest way to compare two long-horizon financial decisions that look nothing alike on the surface.

How the calculation works

The model has two scenarios running in parallel for the same number of years. The buyer puts the down payment plus closing costs into a house, then carries a mortgage and a set of ownership costs each month. The renter starts with that same down-payment-plus-closing cash invested in a brokerage account, and pays monthly rent plus renters' insurance. Each month, whichever household is spending less puts the gap into the invested side of their ledger, and the invested balances grow at the chosen return rate.

Mortgage payments use the standard fixed-payment amortisation formula P&I = L · r · (1 + r)ⁿ / ((1 + r)ⁿ − 1), where L is the loan, r is the monthly interest rate, and n is the term in months. Property tax, maintenance, and homeowners' insurance all scale with the current home value, which grows each year at the appreciation rate you set. Rent grows each year at the rent-inflation rate, and renters' insurance stays flat.

At each year-end the simulation totals net wealth for both sides. The buyer's net wealth is the investment account plus net sale proceeds — home value minus selling costs minus the remaining mortgage balance. The renter's net wealth is just the investment account, which started with the buyer's upfront cash. The break-even year is the first year the buyer's net wealth catches up. The full year-by-year table sits below the headline number, so you can see how the gap evolves rather than just the crossover point.

Worked example: $400,000 home, 30-year horizon

Run the rent vs buy calculator on its defaults — $400,000 home, 20% down, 6.5% mortgage over 30 years, 1.1% property tax, 1% maintenance, 0.4% homeowners' insurance, no HOA, 3% home appreciation, 3% closing costs, 7% selling costs — against $2,200/month equivalent rent growing at 3% per year with a 6% after-tax investment return.

The first-year monthly cash picture for the buyer comes out roughly like this: principal and interest of about $2,023, monthly property tax around $367, maintenance budget around $333, and insurance around $133. Total buyer outflow is about $2,856 a month. The renter spends $2,200 in rent plus $15 in insurance — $2,215 — so the renter has about $641 a month of spare cash, which goes into the investment account on top of the $92,000 head-start ($80,000 down payment plus $12,000 closing costs).

That head-start does most of the work in the early years. At 6% compounded monthly, $92,000 doubles to roughly $184,000 in about 12 years, before counting the monthly contributions on top. The buyer's side has to overcome that gap through home appreciation and principal repayment, while paying transaction costs of about 7% of the eventual sale price on the way out. At these defaults the two sides typically cross over somewhere in years 9 to 12. Push the appreciation rate down to 2% and the crossover pushes out past the comparison horizon; push it up to 4% and buying wins by year 7. Try the changes for yourself in the calculator — the sensitivity is the point.

Factors that move the break-even year

Mortgage rate

The mortgage rate is the single most leveraged input because it compounds in two directions at once: a higher rate means more interest paid each month and a slower build-up of principal. Going from a 5% mortgage to a 7% mortgage on the same $320,000 loan adds roughly $400 a month in interest in year one — money the buyer is not investing, and money the renter pockets as the gap they invest instead. A swing of two percentage points can shift the break-even year by three to five years on its own.

Investment return

The return you assume on the renter's investment account is the second-biggest lever, and the most contested. Use a number that matches what you would actually do with the cash. A long-run diversified equity portfolio has averaged something like 7% nominal in most developed markets over multi-decade windows; a conservative balanced portfolio runs closer to 5%; cash in a high-yield savings account during a high-rate regime can briefly clear 4–5%; cash in a current account earns close to zero. The default of 6% is a reasonable middle estimate, but the answer changes meaningfully if you would realistically only put the money in a savings account.

Home appreciation

Home appreciation is what the buyer's side relies on to overcome the renter's head-start. Long-run real home appreciation in most developed markets has been modest — Robert Shiller's widely cited US dataset puts it close to zero in real terms over a century, with big regional and decade-by-decade swings. Three percent nominal is a reasonable default that roughly matches long-run inflation; pushing the assumption above 5% nominal is aggressive unless you have a specific reason. The flip side is that if you actually believe in 2% appreciation, you should also be paying attention to whether rent is going to grow at 4%, because rent and home prices broadly track the same underlying housing market over long horizons.

Transaction costs

Buying closing costs typically run 2–5% of the purchase price depending on jurisdiction. Selling costs, dominated by agent commissions where those apply, run 5–8% in the US and 1.5–3% in most of Europe and Asia. Those costs come straight out of the buyer's side of the ledger at exit, which is why the break-even year is so sensitive to how long you actually stay. Buying and selling inside five years almost never wins on the math once you account for transaction friction, no matter how good the other inputs look.

Length of stay

The single most important input the calculator cannot guess for you is how long you are going to live in the home. Break-even at year 10 is a useless answer if you are planning to move in year 5. Run the calculator with the horizon set to your realistic stay, not the full 30-year mortgage term, and read the buyer-versus-renter wealth line at that year. If you are within a few years of the break-even point, the answer is probably "it doesn't really matter financially, pick on lifestyle grounds." If you are five-plus years past it, buying is clearly winning. If you are five-plus years short of it, renting is.

How to use the calculator well

• Start with realistic comparable rent. The single most common mistake is comparing a 3-bed house you would buy with a 1-bed flat you would rent. They are different products. Use the rent for an equivalent property in the same neighbourhood — not the cheapest rental you could tolerate.
• Match the horizon to your actual plan. If you are buying a starter home and expect to move in seven years, set "compare over (years)" to seven. Reading the 30-year break-even is irrelevant to your decision.
• Run two or three scenarios, not one. Pick a central case, an optimistic case (lower mortgage rate, higher appreciation), and a pessimistic case (higher rate, flat appreciation). The honest answer is the range, not a single number. The rent vs buy calculator runs in well under a second, so try several.
• Be honest about the investment return. If you would not actually invest the down payment in an index fund, do not enter 7%. Enter what the cash would really do — most likely a savings account.
• Check the down payment separately. The down payment calculator tells you how much you need saved to hit a given down-payment percent; pairing the two stops you from running rent-vs-buy scenarios on cash you do not actually have.
• Sanity-check affordability. Use the house affordability calculator to confirm the home price you are testing is one your income and existing debts can carry. A break-even at year 8 on a house you cannot actually qualify for is not useful.

Common mistakes

Comparing mortgage payment to rent

The mortgage payment versus the rent payment is not the comparison you want. Buying always looks better on that comparison because the mortgage payment ignores property tax, maintenance, and insurance — which together run roughly 2–3% of the home value per year for most single-family homes. The full-cost figure is closer to rent than the principal-and-interest figure suggests. The calculator bakes all of this in so you do not have to.

Ignoring opportunity cost on the down payment

The down payment is not free. The cash you put into a house is cash you cannot put into an investment account, and over a 30-year horizon the difference between earning 6% and earning 0% on $80,000 is over $300,000 of foregone wealth. The equalised-cash-flow model forces this onto the renter's side of the ledger so it cannot be quietly skipped.

Forgetting selling costs

Many short-form rent-vs-buy calculations show only the wealth the buyer has "on paper" — the home value minus the mortgage balance. That overstates the buyer's position by 5–8% in markets where agent commissions are high, because that money is going to leave with the sale. The break-even year in this calculator is the year you would come out ahead after selling, which is the only break-even point that matters.

Treating the headline number as a forecast

The break-even year is a function of inputs, not a prediction. If you change any of the rates by even one percentage point, the answer can move by several years. The right way to read the result is "under these assumptions, buying pulls ahead in year X" — and then to test how much the answer changes when the assumptions do. Pair the rent-vs-buy result with an investment calculator run on the same return assumptions to make sure the math is internally consistent across both sides.

When the calculation isn't the whole story

The math is necessary but not sufficient. A break-even at year nine does not capture how much you value being able to repaint a room without asking permission, or how much you fear an unexpected landlord eviction, or whether the local school catchment changes with tenure. Those are real factors, they are just not quantitative. Use the rent vs buy calculator to get the financial picture sharp, and then make the lifestyle call separately.

Tax treatment is the other piece this model deliberately leaves out, because it varies wildly by jurisdiction and personal circumstance. In the United States, mortgage interest is potentially deductible if you itemise — but since the 2017 Tax Cuts and Jobs Act roughly doubled the standard deduction, most households no longer do. In the United Kingdom, mortgage interest relief on a primary residence was abolished in 2000 and there is no tax on owner-occupied capital gains. In most of Europe, the treatment falls somewhere between the two. If you are in a high-tax US state and you do itemise, your effective ownership cost is lower than the calculator shows; talk to an accountant for the specifics rather than guessing.

If the answer is genuinely close — within a couple of years of break-even either way — a fee-only financial planner who can model your specific tax situation, expected length of stay, and the opportunity cost of tying up illiquid capital is worth the consultation. The calculator gets you to within shouting distance of the right answer; a planner can dial in the last mile.

Related calculators

• Mortgage payment calculator — monthly principal and interest for any loan amount, rate, and term.
• House affordability calculator — the maximum home price your income and existing debts can carry.
• Down payment calculator — how much you need saved to reach a target down-payment percent.
• Mortgage payoff calculator — how extra payments shorten the mortgage and save interest.
• Investment calculator — the companion to the rent side of the ledger, projecting what the renter's alternative investment grows into over time.
• Cap rate calculator — the income-property equivalent for evaluating a rental purchase as an investment rather than a home.