How renting and buying are compared
The calculator adds up the cost of each choice over the years you plan to stay. Buying includes the down payment, mortgage, tax, insurance, maintenance and selling costs, less the equity you end with. Renting includes rent and its yearly increases.
The formula
Net cost of buying = total payments + selling costs − equity at sale
How the result changes over time
Buying usually costs more in the first few years because of closing and selling costs. The longer you stay, the more equity and appreciation offset them.
How to use this calculator
Start with the number of years you plan to stay. Then enter the buying side: home price, down payment, interest rate, loan term, property tax rate, and maintenance and insurance. Add the monthly rent you would pay for a similar home and how much you expect it to rise each year. The rent vs buy calculator also uses a home appreciation rate, an investment return and selling costs to work out the net cost of each choice and the equity you would walk away with.
Worked example
Say you buy a $400,000 home with $80,000 down and a $320,000 loan at 6.5% for 30 years. Principal and interest come to $2,022.62 a month. You pay $9,600 in closing costs (3% of the loan) and $700 a month for property tax, insurance and maintenance. The home rises 3% a year, and selling costs 6% of the sale price. The alternative is a similar home that rents for $2,000 a month, with rent rising 3% a year. These are example numbers, not current rates or quotes.
| Years you stay | Net cost of buying | Total rent paid | Lower cost |
|---|---|---|---|
| 3 | $85,284 | $74,182 | Renting |
| 5 | $116,625 | $127,419 | Buying |
| 10 | $182,285 | $275,133 | Buying |
Here is the five-year row step by step. Total payments are $252,957: the $80,000 down payment, $9,600 in closing costs, $121,357 in mortgage payments and $42,000 in tax, insurance and maintenance. After five years the home is worth $463,710, so selling costs are $27,823. The loan balance is $299,555, which leaves equity of $164,155. Net cost of buying = $252,957 + $27,823 − $164,155 = $116,625.
What the result means
The result is the money you never get back on each side. For renting, that is all of the rent. For buying, it is interest, tax, insurance, maintenance, closing costs and selling costs, after you take out the equity you keep. The lower figure is the cheaper choice for that number of years. In the example, renting wins at three years and buying wins from year five. The point where the two lines cross is your break-even year.
The price-to-rent ratio gives a quick first read. In the example it is $400,000 ÷ $24,000 = 16.7.
What changes the result
- Years you stay. More years spread the closing and selling costs over a longer period, which favors buying.
- Appreciation. A higher rate adds equity and favors buying. A flat or falling price favors renting.
- Rent increases. Faster rent growth raises the cost of renting every year. A fixed-rate mortgage payment stays the same.
- Interest rate. A higher rate means more interest and slower equity, which favors renting.
- Selling costs. These come straight out of your equity, so they matter most on short stays.
Common mistakes
- Comparing the mortgage payment with the rent and stopping there. Owners also pay property tax, insurance and maintenance.
- Leaving out closing costs, which commonly run 2% to 5% of the loan.
- Treating the whole mortgage payment as savings. Only the principal part builds equity.
- Assuming the home will rise in value every year. Test a low appreciation rate as well.
- Comparing a house you would buy with a much smaller rental. Use similar homes on both sides.
Related calculators
To see the full monthly payment on the home you have in mind, use the mortgage calculator. The closing cost calculator estimates what you pay upfront, and the rent affordability calculator shows the rent your income supports.
Frequently asked questions
How long should I stay for buying to make sense?
A common rule of thumb is at least five years, but it depends on prices, rents and rates in your area.
What is the price-to-rent ratio?
Home price divided by a year of rent for a similar home. A high ratio favors renting and a low ratio favors buying.
Is rent wasted money?
No more than mortgage interest, property tax and maintenance are. Compare the costs you never get back on each side.
Should I buy if the mortgage payment is the same as my rent?
Not on that fact alone. Add property tax, insurance, maintenance, closing costs and selling costs to the buying side, then compare over the years you expect to stay.
Does a bigger down payment change the answer?
It lowers the loan and the interest you pay, and you get the money back as equity when you sell. It also ties up cash that could have been used elsewhere, so the comparison shifts less than the smaller payment suggests.
How do rent increases affect the comparison?
They compound. In the example, rent of $2,000 a month rising 3% a year adds up to $127,419 over five years and $275,133 over ten.
Is the result a prediction?
No. It is an estimate based on the appreciation rate, rent increases and costs you enter. Change them to see how sensitive the answer is.