Is it better to rent or buy a home?
It depends on how long you stay and what your money would earn instead. Buying builds equity but costs interest, taxes, upkeep and big transaction fees; renting is flexible, and the down payment can be invested. Over short horizons renting usually wins; over long ones, buying often does.
“A $400,000 home with 20% down at 6.5%, or $2,200 rent with the difference invested at 7%. Who’s ahead after 7 years?”
Buying, narrowly: by about $4,256. Year 7 is the break-even year, the first year-end at which owning is ahead. Try this scenario
“Same home, but I might move in 3 years.”
Renting wins by about $22,204. Closing and selling costs swamp the equity a buyer builds in the first few years. Try this scenario
How does this rent vs. buy calculator work?
It follows two households month by month, spending the same cash. The buyer pays the mortgage, property tax and maintenance; the renter pays rent and invests the down payment and closing costs. Whoever’s monthly bill is lower invests the difference, so the comparison is fair.
Buying = home value − loan balance − selling costs + buyer’s investments · Renting = renter’s investments
Home value grows at your appreciation rate and investments at your market return. The break-even year is the first year-end at which buying is ahead. Taxes on investment gains and the mortgage interest deduction are left out; see the methodology.
“What if I stay 15 years?”
Buying wins by about $98,403. Each year of appreciation and principal paid compounds, while the renter’s rent keeps rising. Try this scenario
What is the price-to-rent ratio?
It’s the home price divided by a year of rent: $400,000 against $2,200 a month is about 15. Below roughly 15, buying tends to look attractive; above about 20, renting often wins. It’s a quick screen; this calculator adds financing, costs and returns.
“What if comparable rent is only $1,800 a month?”
Renting wins by about $42,931 after 7 years, and buying never catches up within 40 years at these returns. Try this scenario
How do mortgage rates and market returns change the answer?
A lower mortgage rate cuts the buyer’s monthly cost, so less money flows to the renter’s portfolio and buying wins sooner. A higher expected market return does the opposite: every dollar the renter invests grows faster. The two rates often decide the result more than the price does.
“Same 7-year plan at a 4% mortgage rate?”
Buying wins by about $71,220, and pulls ahead in year 3 instead of year 7. Try this scenario
“And if stocks return 10% a year instead of 7%?”
Renting wins by about $32,130, and buying never catches up within 40 years. Your market return is a key assumption, so test a cautious one. Try this scenario
Rent vs. buy FAQ
Does this include the mortgage interest deduction?
No. Since 2018 the higher standard deduction means most households don’t itemize, so the deduction often saves little or nothing. Taxes on the renter’s investment gains are also left out; home sale gains are largely tax-free for a primary residence. Both omissions roughly offset for typical buyers.
What costs of owning should I include?
Property tax (often around 1% of value a year), homeowners insurance, maintenance (a common rule is 1% of value a year) and HOA fees. Enter their total as a percentage of the home’s value. Closing and selling costs are separate, under More options.
Why does a short stay favor renting?
Buying has large one-time costs: around 3% to close and 6% to sell. In the first years most of each mortgage payment is interest, so little equity builds. It usually takes several years of appreciation and principal payments before owning recovers those costs.
What if I wouldn’t actually invest the difference?
Then buying looks better than this calculator shows. The comparison assumes the renter invests the down payment and every month’s savings. A mortgage forces saving through principal payments, which many people find easier to stick with than voluntary investing.