Rent vs Buy Calculator — Who Ends Up Richer?
A renter on r/personalfinance wrote: ‘My friends keep saying rent is always throwing money away… closing costs is throwing money away. Interest on a 7.5% mortgage is throwing money away. Maintenance is throwing money away… I just don’t see how buying makes sense right now, am I missing or thinking incorrectly?’ (September 19, 2023). That is the right question, and it has no universal answer — only a number for your city, rate and horizon. This calculator runs the full month-by-month race: what you keep if you buy and later sell, versus what grows if you rent and invest every dollar of the difference. The winner and the break-even year come out instantly, with no account.
How this calculator works
Both paths are simulated month by month. Buying: the mortgage amortizes with M = P·r/(1−(1+r)^−n); each month you pay principal + interest + property tax + insurance + maintenance (tax and maintenance scale with the home’s current value), the home grows at your appreciation rate, and at the end you sell: net proceeds = value × (1 − selling costs) − remaining loan balance. Renting: your down payment + closing costs start a portfolio, each month you pay rent (growing at your rent-inflation rate) and invest the difference between the two paths’ monthly costs, and the portfolio compounds at your investment return. Winner = net proceeds − portfolio. Break-even year = first year where net sale proceeds pass the portfolio. All nominal dollars, before income tax; with under 20% down add PMI to the insurance field.
Scenario examples
| Home price ($) | Winner over 7 years | Break-even year |
|---|
| 200,000 | BUYING by $110,279.6 | Year 2 — buying pulls ahead |
| 300,000 | BUYING by $40,830.86 | Year 4 — buying pulls ahead |
| 400,000 | RENTING by $28,617.87 | Buying never pulls ahead in 7 years |
| 600,000 | RENTING by $167,515.35 | Buying never pulls ahead in 7 years |
| 800,000 | RENTING by $306,412.82 | Buying never pulls ahead in 7 years |
Every number above is computed by the same in-browser engine as the calculator — nothing is hardcoded.
Why the monthly payment comparison misleads almost everyone
The most common way people compare renting and buying is mortgage payment versus rent, and it is wrong in both directions. It ignores that a large share of an early mortgage payment is interest — on a $320,000 loan at 6.5 percent, the first payment of about $2,023 sends roughly $1,733 to the bank and only $290 to your own equity. It ignores property tax, homeowners insurance and maintenance, which together typically add 2.2 percent of the home value per year. And it ignores the money you never see again: the 2 to 5 percent you pay to close and the 5 to 6 percent a future sale costs in commissions. Renting looks expensive only when you compare rent to principal; it looks reasonable when you compare rent to the full cost of ownership, which is what this calculator does every month of the simulation. The renter side is held to the same standard: the model invests the down payment, the closing costs and every monthly dollar the renter saves, because unspent savings that sit in a checking account earn almost nothing and quietly lose the comparison.
The break-even year is the number that should drive the decision
Buying is a transaction-cost business: you start about 3 percent underwater on day one and the 6 percent selling cost means you need roughly 9 percent of appreciation just to return to where you started. That is why the horizon matters more than the rate. With a 7-year stay on the defaults above, appreciation has time to outgrow the friction; with a 3-year stay the same inputs usually hand the win to renting even when the mortgage payment looks cheaper month to month. Run the calculator twice — once with your realistic stay and once with five years added — and watch how the winner and the break-even year move. If a plausible job change or family change could pull your stay below the break-even year, renting is the lower-risk choice even if buying wins on paper at ten years. The break-even output is the honest answer to the only question that matters: how long do you have to stay for the purchase to pay for its own friction.
Price-to-rent ratio: the 30-second market check before you open any calculator
Divide the median home price in your market by the annual rent for a comparable home. Below 15, buying is usually the better deal; 16 to 20 is toss-up territory where rates and your horizon decide; above 21, renting wins on cash flow unless you are certain of long appreciation. The national ratio sits around 15.7 in 2026 — right at the toss-up line, which is why generic advice from friends who locked sub-3 percent rates in 2020 does not transfer to a 6.5 percent mortgage. The ratio is a screen, not a verdict: it tells you which way the local math leans before you spend twenty minutes on exact inputs. Combine it with your stay length — a high price-to-rent ratio plus a short horizon is the clearest rent signal there is, and a low ratio plus a decade-plus stay is the clearest buy signal. Everything in between is what the month-by-month numbers above exist for.
FAQ
Is renting really throwing money away?
No — rent buys housing, a real service, and it caps your cost: no surprise roof, no reassessment, no commission when you leave. What renting does give up is forced savings. The honest comparison invests the difference; if you spend it instead, renting loses by default. That is exactly what this calculator models.
How long should I plan to stay before buying?
Transaction costs run 3% to close plus 6% to sell, so a short stay starts deep in the hole. Historically 5+ years is the rule of thumb; run your own numbers above — with high rates and fast rent growth in your market the break-even can land later than you expect.
What return should I assume for the renter’s portfolio?
7% is a conservative long-run stock assumption after inflation adjustments are excluded (this model uses nominal dollars, so 7–9% is reasonable). If you would leave the money in a savings account, use 4% — the renting case weakens considerably.
Does this include PMI and HOA?
Not as separate fields — add your annual PMI or HOA cost to the insurance field and it flows through every month, exactly like escrow does.
Why does buying look worse than my friend’s spreadsheet?
Most spreadsheets compare mortgage payment vs rent and count principal as ‘savings’. This model charges you for the interest, taxes, maintenance and the 6% you will pay a realtor on the way out, and gives the renter credit for investing the down payment — the costs people forget until closing day.
Rent or buy with a 20% down payment and 6.5% rates?
It depends on your price-to-rent ratio. As a quick screen, multiply the annual rent of a comparable home by 15–20: if that is below the purchase price, renting tends to win on cash flow. The calculator gives you the exact break-even year for your inputs.
Does the calculator account for mortgage interest deductions?
No — it compares pre-income-tax dollars on both sides. Since the 2017 tax change most filers take the standard deduction, so the mortgage interest deduction benefits only itemizers, and the SALT cap limits property tax write-offs to $10,000 (higher under the 2025 reconciliation for eligible filers). If you itemize heavily, buying looks somewhat better than this model shows; treat the output as the conservative case.
What if home prices fall?
Set the appreciation field below the historical average, or to zero, and re-run. The model applies your rate every month, so a 1 percent or 2 percent figure shows how much later the break-even year lands. Housing has never fallen for a decade nationally, but 5 to 10 percent local corrections happen; if the renting side wins at zero appreciation, you are not betting your decision on a boom continuing.
Should I include HOA fees and PMI?
Yes — add annual HOA dues and any PMI premium into the insurance field. PMI on conventional loans runs 0.2 to 2 percent of the loan per year until you reach 78 to 80 percent loan-to-value, which for a short stay is most of your ownership period. Folding them into insurance keeps the monthly simulation honest without adding fields.
Sources and borrower question