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Rent vs Buy Calculator

Whether buying or renting leaves you better off after the years you plan to stay, counting mortgage interest, tax, upkeep, selling costs and what a renter earns investing the down payment.

Over 7 years, renting leaves you about $18,650 better off: $169,513 of equity after selling, against $188,163 for a renter who invests the down payment and any monthly savings. Buying doesn't pull ahead within 7 years.

Better after 7 years
Renting
By
$18,650
Buying pays off after
More than 7 years
Home equity if you sell then
$169,513
Net worth from buying (equity after selling) against renting and investing, over 7 years$0$50k$100k$150k$200k0246Years━Buy━Rent and invest

This week's mortgage rates →

$2,400 rent against a $400,000 home, 20% down at 7%: who is ahead, by home price growth and years

Price growth3 years7 years12 years
1% a yearRent +$51,402Rent +$65,687Rent +$67,746
3% a yearRent +$28,684Rent +$11,141Buy +$28,015
5% a yearRent +$5,051Buy +$50,391Buy +$148,206

How this calculator works

Buying: the down payment and 3% closing costs up front; then principal and interest, property tax, insurance and 1% a year of upkeep. The home grows in value at the rate you set and is sold at the end with 6% selling costs; what is left after paying off the loan is the buyer's net worth.

Renting: the same up-front cash is invested at the return you set, and each month the renter invests whatever renting saves over owning (or draws down what it costs more). Rent rises each year.

What it assumes

  • No tax effects: capital gains exclusions, mortgage interest deductions and tax on investment gains are left out.
  • Returns, price growth and rent growth are steady averages; real ones vary.
  • Selling costs of 6% cover commissions, transfer taxes and fees; they vary by market.

Questions people ask

Is it better to rent or buy?

It depends mostly on how long you stay: buying has big up-front and selling costs that take years to recover. Over a short stay renting usually wins; over a long one buying usually does.

How long do I need to stay for buying to pay off?

Often five to seven years or more. In the example above with 3% price growth, buying pulls ahead in year 9.

What costs of owning do people forget?

Maintenance (1% to 2% of the home's value a year is a common budget), closing costs to buy, selling costs later, and rising property tax and insurance.

Isn't rent money wasted?

No more than mortgage interest, property tax and upkeep are: those are the owner's unrecoverable costs. The fair comparison is rent against those, plus what the down payment could earn elsewhere.

Related calculators

  • Home Affordability CalculatorThe home price your income supports under the 28/36 guideline lenders use, counting your other debts, down payment, taxes and insurance, at this week's average rate.
  • Mortgage CalculatorYour full monthly mortgage payment: principal and interest, property tax, insurance, PMI and HOA dues, at this week's average rate, with a yearly amortization schedule.
  • Compound Interest CalculatorWhat money grows to with compound interest, compounded daily, monthly or yearly, with a deposit every month.

Sources

Updated by the RateHerald team. The maths is tested against worked examples; report a problem.

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