Rent vs Buy Calculator

How the Rent vs Buy Calculator Works

This calculator compares two parallel scenarios over your chosen time horizon: (1) buying a home with a mortgage and (2) renting while investing the money you would have spent on a down payment and the monthly cost difference.

The key insight is opportunity cost. Your down payment could be invested in the stock market. Monthly ownership costs above your rent could also be invested. Conversely, the equity you build and home appreciation work in your favor as a buyer.

What Costs Are Included?

For buying, the calculator factors in: mortgage principal & interest (amortized monthly), property taxes, homeowners insurance (0.5% of home value annually), maintenance, HOA fees, closing costs (3% at purchase), and selling costs (6% of future home value). It also credits you for the mortgage interest tax deduction (estimated at a 24% marginal rate on interest above the standard deduction).

For renting, costs include monthly rent with annual increases and renters insurance (~$15/mo). The down payment plus any monthly savings (when renting is cheaper than owning) are invested at your specified return rate.

The 5% Rule

A popular quick rule: multiply the home price by 5% and divide by 12. If your monthly rent is below that number, renting is likely cheaper. For a $350,000 home, the threshold is $1,458/mo. The 5% accounts for ~1% property tax, ~1% maintenance, and ~3% cost of capital. This calculator provides a much more detailed analysis that accounts for your specific numbers.

Frequently Asked Questions

Is it cheaper to rent or buy a home?

It depends on local housing costs, how long you'll stay, mortgage rates, and what you'd earn investing elsewhere. In high-cost cities with low rent-to-price ratios, renting and investing the difference often wins. In affordable markets or over 7+ years, buying typically wins due to equity buildup and fixed payments.

What is the opportunity cost of a down payment?

It's the return you could earn by investing your down payment instead. A $70,000 down payment at 7% annual returns grows to about $137,000 in 10 years. This calculator includes that opportunity cost in the renting scenario.

How long do I need to stay for buying to make sense?

Typically 5–7 years to recoup closing costs and transaction fees. Your specific breakeven depends on mortgage rate, appreciation, local rent, and investment returns. This calculator computes your exact breakeven year.

What is the 5% rule for rent vs buy?

Multiply home value by 5%, divide by 12. If rent is below that monthly number, renting is probably cheaper. For a $400,000 home, the threshold is ~$1,667/mo. This is a rough heuristic — use the full calculator for an accurate comparison.

Should I put more or less money down?

A larger down payment reduces your mortgage interest but increases opportunity cost (that money can't be invested). If investment returns exceed your mortgage rate, a smaller down payment may be mathematically optimal — though a larger down payment reduces monthly cash flow requirements and avoids PMI (typically required under 20%).