Rent vs buy calculator: which leaves you with more money?

What this rent vs buy calculator compares

Most rent vs buy calculators compare the mortgage payment with the rent and stop there. That leaves out most of the money. The buyer hands over a deposit and buying costs on day one, pays costs a tenant never sees, and pays again to sell. The renter keeps the deposit — and if it is invested, it grows. So this page prices two people with the same budget: one buys, the other rents and invests what the purchase would have taken. Every month, whichever of them is paying less invests the difference. When the home is sold, the page compares what each has.

That makes it a comparison of two piles of money, not of two monthly bills, and it means every figure the answer depends on is on the screen. None of the costs is a built-in “typical” number: buying costs, selling costs and the yearly cost of owning vary by country, state and property, and the starting values are an example to replace with your own.

The example, worked through

The example is a $400,000 home with 20% down and a 6.5% mortgage over 30 years: $2,022.62 a month. Add $7,000 a year of property tax, insurance and upkeep and owning costs $2,605.95 a month in the first year, against $2,300 of rent. So the renter invests the $80,000 deposit and the $12,000 of buying costs on day one, plus $305.95 a month. Rent, owning costs and the home’s value all rise by 3% a year, and investments earn 7% — every one of those is an assumption.

Sell after a year and buying is $27,251 behind. Most of that is the cost of the transaction itself: with no buying or selling costs, the same buyer would be $6,189 ahead after one year. After five years the gap has narrowed to $2,809. From year six buying is ahead, and after ten years it is $43,592 ahead: selling the home for $537,567 hands back $239,405 once 5% selling costs and the $271,284 still owed are paid, plus $6,372 the buyer has invested, against $202,184 in the renter’s investments.

The buyer’s pot exists because of the one thing that changes for owners and not for tenants. The mortgage payment is fixed; rent is not. In this example rent overtakes the whole cost of owning in year seven ($2,746.32 a month against $2,719.15), and from then on it is the buyer who has money left over to invest. When the mortgage is paid off in year 30, that gap gets much wider.

Why how long you stay matters most

Buying costs and selling costs are paid once each, however long you stay, so a short stay spreads them over very little. That is why the table under the result starts deep in the red for buying and climbs. The year it crosses zero is the break-even point, and in the example it is year six. Nobody is ahead in general — the answer depends on when the home is sold, and the page shows the figure for each year rather than picking one.

The two guesses that move the answer

Two numbers on this page are pure assumptions: how fast house prices rise, and what investments return. Each has its own table above, holding the other still. On the example, after ten years:

• If house prices rise by 1% a year instead of 3%, renting is $47,339 ahead, and buying does not pull ahead until year 21. At 5%, buying is $151,884 ahead and pulls ahead in year three. With prices flat, renting is $87,096 ahead after ten years and buying catches up only in year 28.
• If investments return 4% instead of 7%, buying is $92,460 ahead. At 10%, renting is $19,094 ahead, and on those figures buying never pulls ahead in 50 years. The renter’s pot starts large, so the return on it matters more than almost anything else.

Neither rate is a forecast. Steady returns are a simplification too: real markets — house prices included — move in lumps, and returns are not a straight line explains why a smooth projection is a way of reading the arithmetic, not a prediction.

Rent is the input to check twice

The rent you type should be for a home you would genuinely accept instead of the one you would buy. Small changes move the answer a long way. In the example, rent of $2,000 instead of $2,300 leaves renting $14,276 ahead after ten years and pushes break-even to year 15; rent of $2,600 makes buying $101,461 ahead and brings break-even forward to year four.

What the figures leave out

No tax is modelled: not mortgage-interest relief, not capital gains on the home or on the investments, and not any transfer tax unless you include it in buying costs. Mortgage insurance is left out too; add it to the yearly owning costs if you would pay it. The comparison is purely financial, so it puts no value on the security of owning or the flexibility of renting. The renter is assumed to actually invest the difference every month — a renter who spends it has no pot. And the mortgage charges interest at the quoted rate divided by twelve, the same way the loan repayment calculator does, so the payment here matches the one it shows.

Related tools and guides

If the question is how long a deposit takes to save while prices keep moving, the house deposit calculator works that through. For what an overpayment on the mortgage saves, see the mortgage overpayment calculator and overpay the mortgage or invest. For why the balance falls so slowly in the early years — the reason so little equity builds before break-even — read why most of a mortgage payment is interest. To see what a sum invested now grows to on its own, use the compound growth calculator.

Not advice. This tool applies arithmetic to assumptions you entered. It does not know your circumstances, your tax position or your goals, and it is not a recommendation to buy, sell or hold anything. Past returns do not predict future ones, and no figure here is a forecast.