Comparing renting and buying honestly: net cost, not payments
The usual rent-versus-buy argument compares a monthly rent with a monthly mortgage payment and stops there — and that comparison misleads in both directions. A mortgage payment is not all cost: part of every payment repays your own loan and builds equity you get back, in effect, when you sell. But owning is not free money either: the down payment could have been invested elsewhere, and taxes, insurance and maintenance leave your pocket without building anything. This calculator therefore compares net cost over the years you will actually stay. For renting, net cost is simply all the rent you pay. For buying, it is everything you pay out — down payment, mortgage payments, tax, insurance and maintenance, plus the investment growth your down payment gives up — minus the equity you end up owning. The smaller net cost wins, and the year-by-year table shows when the lead changes hands.
The model, stated openly
The mortgage is a standard amortising loan: the loan is the price minus the down payment, and the monthly principal-and-interest payment and remaining balance come from the full payment schedule. The home's future value is the price grown at your chosen yearly rate; equity is that value minus the loan balance still owed. Rent is charged monthly and steps up once a year at your rent-increase rate. Every assumption below applies exactly as written — there are no hidden adjustments.
Assumptions and simplifications — read these
- Selling costs are excluded. Agent commissions and closing costs on a sale commonly take a noticeable slice of the price and would make buying look worse, especially over short stays. Buying also has purchase closing costs, which are likewise excluded here.
- Tax, insurance and maintenance are charged as percentages of the purchase price and held flat for the whole stay — they do not grow with the home's value in this model.
- Rent steps up once a year at the rate you enter, rather than month by month.
- The down payment's forgone investment growth is counted as a cost of buying, compounded yearly at your investment-return rate. If you would not actually invest the cash, lower that rate toward a savings rate — or to zero — and buying will look better.
- Monthly cash-flow differences are NOT invested. If rent is cheaper month to month, this model does not credit the renter with investing the difference, and if the mortgage side is cheaper it does not credit the buyer either. That simplification can matter over long horizons.
- No tax deductions, subsidies, HOA dues or renters' insurance are modelled; mortgage-interest deductions in particular depend on your country, income and whether you itemise.
Why the break-even year is the heart of the question
Buying carries heavy fixed friction — a down payment committed, purchase costs, and the work of selling later — while its advantages (equity building, a payment that does not rise with rent inflation, price growth on the whole property rather than just your cash) accumulate slowly. So short stays almost always favour renting, and long stays usually favour buying, and the interesting question is where your numbers cross. That crossing point is the break-even year: the first year in which the net cost of buying falls to or below the total rent paid. Stay well past it and buying's lead typically widens every year, as rent keeps stepping up while more of each mortgage payment becomes equity. Leave before it and the equity you built does not yet repay the costs of getting in and out. If no break-even appears within 30 years at your numbers, renting is not a consolation prize — it is what the arithmetic recommends.
Worked example with the default numbers
Qualitatively, the defaults tell the classic story. A $400,000 home with $80,000 down at 6.5% over 30 years carries a monthly principal-and-interest payment of about $2,023 — more than the $1,800 starting rent — and in the first year or two the net cost of buying sits above the rent paid, because the down payment and its forgone growth are committed immediately while equity builds slowly. As the years pass, rent stepping up 3% a year catches and then passes the mostly-fixed ownership costs, equity compounds through both repayment and 3% price growth, and buying pulls ahead — in the default run the break-even arrives early in the stay, and by year seven buying is ahead by a five-figure margin. Change any single assumption — a shorter stay, no price growth, a higher investment return on cash — and the winner can flip, which is exactly why the live example under the calculator restates the verdict with your numbers rather than these.
Worked example
With the defaults — a $400,000 home, $80,000 down, 6.5% over 30 years, $1,800 monthly rent rising 3% a year, and a seven-year stay — the early years favour renting while equity is thin, then buying pulls ahead and finishes the seven years cheaper on a net-cost basis. Shorten the stay to a year or two, or set price growth to zero, and renting wins instead: the break-even year is the answer, not a slogan.
How to use this calculator
- Enter the home price and the down payment you would make; the loan is the difference, priced at the rate and term you choose.
- Enter how many years you realistically expect to stay — this is the single most important input, so be honest rather than hopeful.
- Enter the rent you pay now (or would pay for a comparable home) and the yearly increase you expect.
- Set property tax, insurance and maintenance as percentages of the price per year, plus your assumptions for home price growth and the return your down payment cash could earn invested.
- Read the net cost of buying against the total rent, then check the year-by-year table and break-even year: only buy if your expected stay runs comfortably past it.
What this comparison cannot decide for you
Net cost is the right financial yardstick, but it is not the whole decision. Owning brings control — you cannot be asked to leave at the end of a lease, and you can renovate as you please — along with responsibility for every repair and far less freedom to move. Renting brings flexibility, at the price of rising rent and no equity. Many households sensibly pay a modest premium over the pure arithmetic for the option they actually want to live with; the value of this page is knowing how large that premium is, in dollars, before you pay it.
Testing your own sensitivity
Before trusting any single verdict, stress-test it. Set price growth to 0% and see whether buying still wins on repayment and rent inflation alone. Raise the investment return and watch the down payment's opportunity cost grow. Cut the stay to the shortest you can genuinely imagine. If buying only wins under optimistic assumptions, that fragility is itself the answer. Then price the actual loan with the Mortgage Calculator and check it against lender ratios with the Home Affordability Calculator.