How rent versus buy is calculated

The comparison in one paragraph

Rent versus buy is a cash comparison over a stay you choose, not a verdict about the right city or the right house. The rent versus buy calculator prices a level mortgage payment on the price minus your down payment, adds the tax, insurance, and maintenance you type, and grows the rent once a year. At the end of the horizon it sells the home, pays the remaining loan and a selling cost, and credits you with what is left. If you rent, it keeps the down payment and grows that cash at a savings rate you type. The cheaper side is the one with the lower net cost.

When to use

Use it when you already have a price and a rent in mind and you want the stay length to do the work. The home affordability guide answers an earlier question: what price the income can carry. The mortgage payment guide prices principal and interest once the loan amount is known. The amortization guide shows how that payment splits. The refinance guide is for a loan you already owe. The inflation guide is the purchasing-power view of a rate you type. This page uses inflation only as the rent-growth and home-growth assumptions you enter. It does not download an index.

The formula in plain English

Loan = price − down payment
Monthly principal and interest = level payment on that loan
Owner cash each month = principal and interest + tax + insurance + maintenance
Rent that year = starting rent × (1 + rent inflation) ^ (year − 1)

Home value = price × (1 + appreciation) ^ years
Net cost of buying = down payment + owner cash + remaining loan + selling cost − home value
Net cost of renting = rent paid − (down payment grown at the savings rate − down payment)

The level payment is the same fixed-rate formula as the mortgage payment calculator. The monthly rate is the annual rate divided by 12. After the term ends, principal and interest drop to zero and tax, insurance, and maintenance continue. Tax, insurance, and maintenance do not inflate. Rent steps up once a year, not every month. Appreciation compounds once a year. The savings rate compounds monthly, the same convention as the other growth tools on the site.

Break-even is the first year, up to 40, in which the net cost of buying is less than or equal to the net cost of renting. It can be year 1. It can also never arrive inside 40 years.

A worked example

Turn the optional rates off so the identity is visible. Price 120,000, down payment 20,000, a 0% rate, a 10-year term, no tax, insurance, or maintenance, no appreciation, rent of 1,000, no rent inflation, a 1-year stay, no selling cost, and a 0% return on the cash you would have invested. The loan is 100,000. The payment is 100,000 / 120. One year of payments is 10,000 and the balance left is 90,000. Sale proceeds are 30,000. Cash in was 30,000, so the net cost of buying is 0. Rent paid is 12,000. Buying is cheaper by 12,000 because the principal comes back as equity and the rent does not.

Put the rates back and the answer can flip. A 400,000 price, 80,000 down, 6.5% for 30 years, 250 of tax, 120 of insurance, 200 of maintenance, 3% appreciation, 2,200 rent growing at 3%, a 6% selling cost, and a 4% return on the down payment, held for 7 years: buying’s net cost is about 125,000 and renting’s is about 176,000, so buying is ahead by about 52,000. Set appreciation, rent growth, selling cost, and the savings rate to zero on that same house and renting is slightly ahead. The sliders exist so you can see that flip. Scenario B is the same house with a longer stay, 15 years in the English default, which is the comparison the second column is for.

Trade-offs

Buying converts rent into a mix of interest, ownership costs, and principal you may get back. A short stay spends the selling cost before much principal is repaid. A long stay lets appreciation and principal work, and it also locks you to a payment that does not fall when a cheaper rent appears.

Renting leaves the down payment invested. A high savings rate makes renting look better even when the monthly rent is close to the owner’s payment. A high rent-inflation rate does the opposite over a long horizon. Neither rate is a forecast. They are the assumptions you are willing to stress.

The monthly owner cost in year 1 is not the net cost. Net cost subtracts the equity you could leave with and adds the selling cost. A house can have a higher monthly payment and still be cheaper over seven years, or the reverse.

When the calculator is not enough

It is not enough when the decision turns on something the sliders do not hold.

Taxes on the gain, the interest deduction, and local transfer taxes are not computed. A jurisdiction that taxes the sale heavily can erase a “buying wins” result.

Maintenance is a flat monthly amount. A roof, a special assessment, or a vacancy if you later let the place are spikes, not an average you already typed.

The mortgage is a level payment. Brazilian SAC loans pay principal faster and start with a higher installment. That pair lives on the Price versus SAC calculator. This page does not switch systems.

The rent is one dwelling. It does not price a roommate, a shorter lease, or a landlord’s refusal to renew. It does not price schools, commute, or the option to move for work.

The down payment is cash you could have invested. If that cash is a gift you would not otherwise invest, set the savings rate to zero and read the rent side again.

Affordability is a different gate. A purchase can “win” this comparison and still fail the income ratios on the affordability calculator. Run that page before you treat a win here as a budget.

How to read the result

Monthly owner cost is principal and interest plus the three ownership amounts, in year 1. Monthly rent is the rent you typed, before it steps up. Net cost of buying and net cost of renting are the horizon totals. The verdict is the gap. Break-even can sit beyond the stay you typed. The chart draws cumulative net cost at each year up to that stay. Scenario B adds a second price, a second rent, or a second horizon. It does not blend the two into one household.

Methodology

Loan amount is price minus down payment, and never below zero. Principal and interest use the fixed-rate level-payment formula, nominal annual rate divided by 12, for the term you set. Ownership costs are constant monthly add-ons. They do not reduce the loan. Home value compounds annually at the appreciation rate, which may be zero. Selling cost is a percent of that value. If the sale does not cover the loan and the selling cost, the shortfall is part of the net cost of buying.

Rent compounds annually. The invested down payment compounds monthly at the savings rate. Net cost of renting subtracts only the gain, not the down payment itself, because the renter still holds that cash at the end. The comparison therefore does not pretend the renter spent the down payment.

The model does not round each month to the cent. On the English calculator, the 30-year average fills the mortgage rate from the Freddie Mac PMMS, and you can still edit the field. It does not fetch rent indexes or tax bills. Educational illustration only. It is not a loan offer, a tax opinion, or advice to buy or to rent.

Common mistakes

Reading the monthly payment gap as the whole answer. Selling costs and the principal you recover sit outside that gap.

Leaving appreciation on because a long average looked kind. A flat or falling price is an assumption the slider allows. Try it.

Comparing a 30-year loan’s monthly payment with one year of rent, then stopping. The horizon control is the stay, not the loan term.

Treating break-even in year 9 as a reason to buy when you already know you will move in year 4.

FAQ

Does a lower monthly payment mean buying is cheaper?

No. Net cost includes the down payment, the loan that remains, selling costs, and the home value. Rent’s net cost includes the cash your down payment could have earned.

Why doesn’t maintenance rise with inflation?

Because this model keeps ownership costs flat so you can see them. Rent inflation and appreciation are the two growth rates that do move. A maintenance spike is one of the cases the calculator is not built to price.

What is break-even?

The first year, looking out as far as 40, when buying’s net cost is no higher than renting’s. Your stay can be shorter than that year. Then the verdict at your horizon is the one that matches the plan.

Is the mortgage Price or SAC?

Level payment, the same formula as the mortgage payment calculator. It is the Price-style payment, not SAC.

Should I type a savings rate?

Yes if the down payment is money you would otherwise invest. No, set it to zero, if that cash would sit idle or is not yours to invest. The rent side moves with that choice.

Can I fill the mortgage rate from a market average?

Yes. The 30-year average fills the mortgage rate from the Freddie Mac PMMS, and you can still edit the field. Rent growth and home appreciation stay as the rates you type. The link stores the number you apply. Indicative rate, not a recommendation.

Is this financial advice?

No. It is a comparison of the assumptions you type. It runs in your browser.

Related guides

• How much home you can afford — the income gate before a price “wins” this page.
• How a mortgage payment is calculated — the level payment this comparison uses.
• How an amortization schedule is built — principal and interest month by month.
• How a refinance break-even works — a later question, once you already owe the loan.
• Inflation, IPCA, and real return — a separate view of a rate you type, in purchasing power.

Try it with your figures

Open the rent versus buy calculator. Set the price, the rent, and the years you might stay. Then move appreciation, selling cost, and the savings rate until the verdict either holds or flips. The link keeps the inputs.