Comparing two very different costs
Rent is easy to measure: it is what you pay each month. Owning is not. Part of the mortgage payment builds equity, the home may gain value, but there are closing costs, property tax, insurance, repairs and selling costs. This calculator puts both options on the same footing over the number of years you expect to stay.
How the comparison works
Net cost of buying = down payment + closing costs + mortgage payments + property tax, insurance and upkeep − your equity when you sell (home value minus selling costs minus the remaining loan).
Net cost of renting = total rent paid, with yearly increases − what the down payment and closing costs would have earned if invested instead.
The option with the lower net cost wins. The result is shown as what buying saves you; a negative figure means renting comes out ahead.
Worked example: 7 years in a $400,000 home
Assumptions: 20% down, 6.5% 30-year mortgage, 3% closing costs, 2.5% a year for tax, insurance and upkeep, 3% home value growth, 6% selling costs. The comparable rental costs $2,300 a month, rising 3% a year, and savings earn 5%.
- Cash needed to buy: $92,000. Mortgage payment: $2,022.62.
- After 7 years, your equity when selling is about $173,101.
- Net cost of buying: $165,424.
- Rent paid over 7 years: $211,484, for a net cost of renting of $174,031 after investment gains.
- Buying saves about $8,607 over 7 years.
The break-even horizon
| Years in the home | Net cost of buying | Net cost of renting | Buying saves |
|---|---|---|---|
| 2 | $74,551 | $46,598 | −$27,953 |
| 5 | $130,116 | $121,114 | −$9,002 |
| 7 | $165,424 | $174,031 | $8,607 |
| 10 | $215,324 | $258,545 | $43,221 |
| 15 | $288,454 | $414,069 | $125,615 |
| 20 | $345,163 | $589,519 | $244,356 |
Buying and selling costs are paid once, so a short stay rarely pays off. Here the break-even point falls around year 6.
Which assumptions matter most
- Time horizon: the longer you stay, the better buying looks.
- Home price growth: 1% a year instead of 3% pushes the break-even point out by several years.
- Price-to-rent ratio: where homes cost more than about 20 times the yearly rent, renting often wins.
- Mortgage rate: each extra point adds roughly 10–12% to the monthly payment on a 30-year loan.
What the model leaves out
It ignores the mortgage interest deduction, which helps only if you itemize, and the monthly difference between owning and renting costs, which a disciplined renter could also invest. It also cannot price the non-financial side: stability and freedom to renovate for owners, flexibility for renters.