How to compare renting and buying fairly
"Rent is throwing money away" and "a house is always a good investment" are both too simple. Owning has costs that renting does not: interest, property tax, insurance, upkeep, closing costs and selling costs. Renting has a cost too, because the money not put into a home could be invested. A fair comparison puts both on the same footing and asks a single question: after a given number of years, which path leaves you with more?
This calculator answers that by following a buyer and a renter month by month. Both start with the same cash. Both spend what their choice requires. Whoever spends less in a month invests the difference, so their total spending is equal. At the end it adds up what each of them owns.
The formulas, and what every variable means
buyer's net worth = home value − selling costs − loan balance + buyer's investments
renter's net worth = renter's investments
home value after t years = price × (1 + growth)t
| Term | Meaning | How it is found |
|---|---|---|
| Cost of owning | What the buyer pays each month | Mortgage payment + property tax + insurance + HOA + PMI (if under 20% down) + upkeep |
| Cost of renting | What the renter pays each month | Rent + renter's insurance, rising every year by the rent increase |
| Loan balance | What the buyer still owes | Standard loan amortization |
| Selling costs | Agent fees and closing costs when the home is sold | A percentage of the sale price |
| Investments | Money set aside and growing | The renter starts with the down payment and closing costs, then adds any monthly saving; each month it grows at the investment return |
| Break-even | How long until buying wins | The first month the buyer's net worth is higher than the renter's |
Property tax and upkeep are charged on the home's value at the start of each month, so they rise as the home gains value. Insurance and HOA dues rise at the same rate as rent. Nothing about taxes on gains or the mortgage interest deduction is included.
Worked example 1, by hand: $400,000 home or $2,200 rent
A $400,000 home with $80,000 down (20%), a 6.5% rate on a 30-year loan, 1.1% property tax, $1,800 a year of insurance and 1% upkeep, against $2,200 a month rent and $200 a year of renter's insurance. The home grows 3% a year, investments earn 5%, and the plan is to stay 7 years.
- Loan: $400,000 − $80,000 = $320,000, so the mortgage payment is $2,022.62. There is no PMI because 20% is down.
- Other monthly costs: property tax $366.67, insurance $150.00 and upkeep $333.33. Owning costs $2,872.62 a month to start.
- Renting costs $2,200 + $16.67 = $2,216.67 a month to start, so owning costs $655.95 more.
- After 7 years the home is worth $400,000 × 1.037 = $491,950.
- The loan balance is $289,332, from the standard balance formula for 84 payments.
- Selling costs at 6% are $29,517.
- Buyer's net worth: $491,950 − $29,517 − $289,332 = $173,101. Owning always costs more than renting in this example, so the buyer has nothing left to invest.
- The renter starts with $92,000 (the down payment plus 3% closing costs), which grows to $92,000 × 1.057 = $129,453. The monthly savings, $655.95 at first, are invested each month and grow to about $54,512, which the calculator adds up month by month.
- Renter's net worth: $129,453 + $54,512 = $183,965.
So after 7 years renting comes out ahead by $10,865. The buyer catches up and passes the renter in month 105 (8 years, 9 months), as the home gains value and the loan is paid down.
Worked example 2: what if rent is different?
| Monthly rent | Ahead after 7 years | Buying pulls ahead after |
|---|---|---|
| $1,800 | Renting by $54,365 | Not within 30 years |
| $2,200 | Renting by $10,865 | 8 years, 9 months |
| $2,500 | Buying by $21,761 | 5 years |
| $2,800 | Buying by $54,386 | 3 years, 5 months |
Rent is the biggest single lever. The comparison depends on how much you would save by renting, and that changes the answer more than most other inputs.
Worked example 3: how long you stay
| Years in the home | Ahead |
|---|---|
| 3 years | Renting by $28,378 |
| 5 years | Renting by $20,803 |
| 7 years | Renting by $10,865 |
| 10 years | Buying by $9,284 |
| 15 years | Buying by $60,564 |
| 20 years | Buying by $141,618 |
Buying has large costs at the start and the end: closing costs and 6% to sell. A short stay does not give the home time to pay them back. The break-even in this example, 8 years, 9 months, is the number to compare with your own plans.
Worked example 4: what home values do
| Home value growth | Ahead after 7 years | Buying pulls ahead after |
|---|---|---|
| 1% a year | Renting by $65,283 | 21 years, 5 months |
| 3% a year | Renting by $10,865 | 8 years, 9 months |
| 5% a year | Buying by $50,529 | 3 years, 5 months |
No one can predict home values, and they differ by city and year. If your decision only makes sense with high growth, you are betting on the market. If it holds up at low growth, it is on firmer ground.
Worked example 5: what your money could earn
| Investment return | Ahead after 7 years | Buying pulls ahead after |
|---|---|---|
| 3% a year | Buying by $9,414 | 6 years |
| 5% a year | Renting by $10,865 | 8 years, 9 months |
| 7% a year | Renting by $33,427 | 24 years, 8 months |
A higher return makes the renter's invested cash more valuable. Investments can lose money as well as gain, so a steady return is a simplification. Try a range that you consider realistic.
Where the default assumptions come from
The defaults are moderate illustrations, not forecasts. Change them to fit your own situation.
- Home value growth, 3% a year. The Federal Housing Finance Agency's house price index has risen at about 4% a year on average since the early 1990s, and that average hides long flat or falling stretches and large differences between cities. We start below the long-run average on purpose. Source: FHFA House Price Index.
- Investment return, 5% a year. Professor Aswath Damodaran's historical tables (1928 to 2025) show large US stocks averaging about 10% a year, ten-year Treasury bonds about 4.5% and three-month Treasury bills about 3.4%, all before inflation and taxes. Five percent sits between the bond and stock figures, in the range a cautious mix of the two might earn. Source: Damodaran, historical returns on stocks, bonds and bills.
- Closing costs, 3% of the price. The Consumer Financial Protection Bureau says closing costs are typically 2% to 5% of the loan or price, so 3% sits inside that range. See our closing cost calculator for a line-by-line estimate.
- Mortgage interest deduction, not modeled. It helps only if your itemized deductions exceed the standard deduction. See IRS Publication 936 for the rules.
Past averages do not predict any single decade. A good habit is to run the calculator with low, middle and high values for both growth and return, as in the examples above, and see whether your answer changes.
What the numbers leave out
- Taxes on investment gains, the mortgage interest deduction and the home-sale exclusion.
- Moving costs, furnishing, and repairs larger than the yearly upkeep percentage.
- Changes to your income, family or job that change how long you stay.
- The value of stability, control and freedom to renovate, and of flexibility to move. These are real, but they are not numbers.
Common mistakes to avoid
- Comparing rent with the mortgage payment only. Tax, insurance, upkeep and PMI are part of owning.
- Ignoring the cost of selling. Selling costs are paid at the end and can take years of growth to earn back.
- Assuming a high home value growth. Test low and negative growth too.
- Forgetting the down payment has an alternative use. The model counts it as invested money for the renter.
- Treating the answer as a certainty. Change inputs and see how far the result moves.
Next, test the monthly payment in the mortgage calculator, check what you can afford with the house affordability calculator, and see how lenders view your budget with the debt-to-income calculator.
Sources and review
The mortgage math is the standard fixed-rate amortization formula, checked in our test suite against closed-form results, and the month-by-month model is tested against simplified cases with exact answers. For buyer guidance see the Consumer Financial Protection Bureau's Owning a Home tools. For the federal tax rules on selling a home see IRS Publication 523. Last reviewed September 2026. If you decide to buy, follow the first-time home buyer guide. Read about our methodology.