Rent vs Buy Calculator

How to Use the Rent vs Buy Calculator

The rent-versus-buy argument usually collapses into slogans — rent is dead money, or house prices always go up. Neither is a calculation. This one runs both lives side by side, year by year, and reports the year in which owning finally pulls ahead.

1. Enter the purchase price and deposit. Use the price of a home genuinely comparable to the one you would rent, not a bigger one. Comparing a two-bedroom rental with a four-bedroom purchase measures your ambitions, not the tenure decision.
2. Set the mortgage rate and buying costs. Buying costs cover fees, legal work and transfer taxes; the closing cost calculator itemises them properly if you want a firmer number than 3%.
3. Enter the rent you actually pay and how fast you expect it to grow. Long-run rent growth tends to track wages more closely than house prices, so 2% to 4% is the usual range.
4. Set house price growth and the renter's investment return. These two assumptions do more to the answer than anything else on the page, which is exactly why they are visible and editable rather than hidden.
5. Fill in the running costs of ownership — property tax, insurance and maintenance — and the selling costs you will pay on the way out.
6. Set your horizon and read the break-even year. Below it, renting wins. Above it, owning does.

The last column of the table is the one to watch. It shows the owner's position minus the renter's, in money, for every year. When it crosses zero, buying has paid for itself.

Rent vs Buy Formula

There is no single equation here. The calculator simulates both scenarios month by month and compares the net position at the end of each year.

Two omissions are deliberate. Mortgage interest tax relief is not modelled, because it exists in some countries and not others and the rules change often. Neither is the rent you would pay on a home you own outright at the end — the comparison stops on the day you sell.

Example

A $420,000 house against $2,200 a month in rent

1. Upfront: deposit 420,000 × 0.20 = $84,000, plus buying costs 420,000 × 0.03 = $12,600. Total $96,600 — the renter invests this instead.
2. Loan: 420,000 − 84,000 = $336,000 at 6.5% over thirty years, so principal and interest is $2,123.75 a month.
3. Annual running costs: tax 420,000 × 0.011 = $4,620, insurance $1,400, maintenance 420,000 × 0.01 = $4,200. That is $10,220 a year on top of the mortgage.
4. After year 5 the owner has spent $275,125 in total and holds $184,295 of equity; the renter has paid $140,161 in rent and their $96,600 has grown to about $130,300.
5. Netting both off after selling costs, the owner is still $14,297 behind at year 5.
6. By year 7 the owner is $3,984 ahead. That is the break-even point.

Staying fifteen years

Run the same numbers out to year 15 and the picture changes completely. The house is worth $703,647, the mortgage balance has fallen to $243,799, and equity stands at $459,848. The renter has paid $491,011 in rent and their invested $96,600 has become roughly $237,100. After 6% selling costs, owning is $136,000 ahead. Every year past break-even widens the gap, because the mortgage payment is fixed while the rent is not.

Change one assumption

Drop house price growth from 3.5% to 1% and the break-even moves out past year 12. Raise the renter's investment return from 6% to 9% and it moves out again. Neither change is exotic — both have happened over long stretches — which is the real lesson: the answer is not a fact about tenure, it is a bet on two growth rates.

Reading the Break-Even Year

Read the break-even year as a minimum stay, not a verdict.

The first year is brutal for the owner: $35,490 behind, almost all of it buying and selling costs that would be paid twice by anyone who moves quickly. Those costs are the reason short ownership is expensive. They do not shrink with time, but they are spread over more years, which is why the curve bends.

Notice also that the owner's outlay column keeps climbing while the equity column climbs faster. Total spending is not the measure — much of what an owner pays comes back as equity, and none of what a renter pays does. But equity is not free money either: it is bought with interest, tax, insurance and upkeep that the renter never pays.

If the break-even lands beyond the time you expect to stay, renting is the better financial decision on your own assumptions. That is a legitimate answer and not a failure. Feed the rent into the budget calculator and put the difference to work somewhere else.

Five Things This Model Cannot Price

Five things the model cannot price, and one of them may matter more than everything above.

Security of tenure. A landlord can sell. A fixed-rate mortgage cannot ask you to leave. For a household with school-age children or a settled job, that stability has a value that does not appear in any column of the table.

Flexibility, in the other direction. Renting lets you take a job in another city on six weeks' notice. Selling a house takes months and costs 6% of its value. If your career is likely to move you, that optionality is worth real money.

Leverage cuts both ways. A 20% deposit means a 10% fall in prices wipes out half your equity. The model shows the upside of leverage clearly; set house price growth to −2% and it will show you the downside just as clearly.

Maintenance is lumpy. The 1% annual figure is an average of years where nothing happens and years where the roof goes. Owners without a funded emergency fund end up financing repairs on credit, which is not in the model and is expensive.

Inflation flatters the owner. The mortgage payment is fixed in nominal terms while rent, wages and prices are not. Over fifteen years at 3% inflation, a $2,123.75 payment costs about 36% less in real terms than it did on day one — a point the inflation calculator makes concrete.

Once you have a horizon you believe in, the mortgage calculator will price the actual payment and the affordability calculator will tell you whether a lender agrees with your price.