How this rent vs. buy calculator works
This calculator compares the total out-of-pocket cost of renting versus buying over the number of years you specify.
Renting cost is your monthly rent, increased by the annual rent-increase rate each year, summed over the comparison period.
Buying cost includes: your down payment, estimated closing costs (3% of purchase price), plus monthly mortgage (principal and interest), property tax, homeowner's insurance (0.5% of home value/year), and maintenance (1% of home value/year). These costs are summed over the comparison period.
Net cost to buy subtracts the equity you've built — both from principal paydown and home appreciation — from total costs paid. This is the apples-to-apples number to compare against total rent paid.
The break-even year is when the net cost to buy first drops below the cumulative rent cost. Before that year, renting costs less. After it, buying does.
Example
You're deciding between renting at $2,000/month (3% annual increases) and buying a $400,000 home with 20% down at a 6.5% mortgage rate. Over 7 years: total rent paid is about $163,000. Total ownership costs (down + mortgage + tax + maintenance) are about $285,000 — but you've built roughly $140,000 in equity (appreciation + principal paid). Net cost to buy: ~$145,000. Buying wins — by about year 6–7 in this scenario.
Frequently asked questions
Is it better to rent or buy?
It depends on how long you plan to stay, local home prices relative to rents, and the mortgage rate. Buying typically wins after 5–7 years in most markets because equity accumulation outweighs the high upfront costs. In expensive markets with high price-to-rent ratios, renting can be cheaper even long-term.
What is the break-even point?
The break-even point is the year when the net cost of buying equals the cumulative rent you would have paid. Before that year, renting is cheaper on a cash-flow basis. After it, buying becomes the lower total-cost option. Most markets see a break-even between 4 and 8 years.
What costs are included in the buying calculation?
Down payment, closing costs (3% of purchase price), monthly mortgage P&I, property tax, homeowner's insurance (0.5%/yr), and maintenance (1%/yr). Equity from appreciation and principal paydown is subtracted to get the net cost to buy.
What about the 20% down payment rule?
Putting 20% down avoids PMI, which typically adds $50–150/month on the loan. With less than 20% down, add your PMI cost to the monthly ownership costs shown. PMI is cancellable once you reach 20% equity — usually in 7–10 years depending on your rate and appreciation.
Does this include the mortgage interest deduction?
No. The mortgage interest deduction benefits roughly 10–15% of homeowners (those who itemize). For most people, the standard deduction is larger. Consult a tax advisor for your specific situation.