What the comparison actually includes
Buying: down payment, ~3% buyer closing costs, monthly principal & interest on a 30-year loan, property tax (1.1%/yr), insurance and maintenance (1.5%/yr of the home’s value) — minus what you get back when you sell: the home’s appreciated value, less 7% selling costs and the remaining loan balance. Renting: the rent itself, growing yearly — minus the growth of the money you didn’t sink into the house (down payment and closing costs, invested), plus every month that owning would have cost more than renting, invested too.
The opportunity cost of upfront cash can materially affect shorter horizons, which is why the model keeps it visible and adjustable.
What the numbers can’t tell you
A fixed-rate mortgage can hold principal and interest steady, while taxes, insurance, maintenance, and utilities can still change. Rent can also rise or fall. Ownership and renting differ in mobility, control, repair risk, and liquidity; none of those preferences is converted to dollars here.
Assumptions you can’t edit (yet)
Property tax 1.1%/yr and insurance + maintenance 1.5%/yr of current home value, buyer closing costs 3%, selling costs 7%, and a 30-year fixed loan. Below 20% down, PMI is estimated at 0.51%/yr of the original loan until scheduled balance reaches 80% of the original price, following Freddie Mac’s published example; your quote and cancellation date can differ. The model includes no mortgage-interest tax deduction because its value is household-specific. Costs and proceeds are compared in nominal dollars over your horizon.
Method, example, and sources
How this calculator works
The buying path totals down payment, closing costs, mortgage payments, property tax, insurance, maintenance, and estimated PMI, then subtracts sale proceeds after selling costs and the remaining loan balance. The renting path totals growing rent and subtracts modeled growth on upfront cash and any monthly cost advantage of renting.
Worked example
For a $400,000 home with 20% down, a 6.5% mortgage, $2,200 rent, a seven-year stay, 4% home appreciation, 3% rent growth, and a 7% investment return, renting has the lower modeled net cost under the built-in cost assumptions. The result changes when any one of those scenario inputs changes.
What the estimate leaves out
- Property tax, insurance, maintenance, buying costs, selling costs, and PMI use fixed planning assumptions rather than property- or borrower-specific quotes.
- Appreciation, rent growth, and investment return stay constant; market volatility, taxes, fees, renovations, utilities, and transaction timing are excluded.
- The model omits the mortgage-interest deduction and nonfinancial preferences and should be used for sensitivity analysis, not as a universal buy-or-rent verdict.
Primary sources
Frequently asked questions
Why does renting sometimes beat buying even when rent is high?
Because mortgage interest, property tax, insurance, maintenance, transaction costs, and the opportunity cost of upfront cash can exceed rent in some scenarios. This model uses a 7% selling-cost assumption; replace the surrounding inputs with estimates for the property and market you are comparing.
What time horizon makes buying worthwhile?
There is no universal number. Buying starts with large transaction costs, while appreciation, principal paydown, rent growth, and investment returns vary by market and year. The shorter your horizon, the more those upfront costs matter. Run your own numbers and vary the horizon rather than relying on a national rule of thumb.
What does the “investment return” field mean?
Money not used for the down payment and closing costs is compounded at the rate you enter, along with any modeled monthly cost advantage of renting. The 7% default is only a scenario, not a forecast; test lower and higher rates that match the realistic use and risk of the cash.
Does this include the mortgage interest tax deduction?
No. Eligibility and value depend on current tax law and the household’s deductions, debt, and filing situation. If the deduction is material to your comparison, calculate it separately using current IRS guidance or a tax professional.
What appreciation rate should I use?
Use several scenarios informed by local data rather than one national historical average. If a small change in appreciation reverses the result, treat the output as sensitive to an uncertain assumption rather than as a stable verdict.