How the comparison works
The fair way to compare is by net worth, not by monthly payment. The calculator follows two versions of you, month by month:
- The buyer pays the down payment and closing costs, then the mortgage, property tax, insurance, maintenance and HOA. At the end they sell, paying selling costs, and keep what's left after the loan is paid off.
- The renter invests the down payment and closing costs instead, pays rent, and each month invests whatever the buyer is paying above the rent. If rent is ever higher, the buyer invests the difference.
Example: a $400,000 home with 20% down at 6.5% has a $2,022.62 principal-and-interest payment and costs about $2,873 a month in total at first, with property tax, insurance and maintenance, against $2,200 rent. With 3% home value growth, 3% rent increases and a 5% investment return, renting is ahead for the first nine years. Buying pulls ahead in year 10, by $6,369.
What tips the balance
- How long you stay. Buying and selling costs about 9% of the price, so short stays usually favor renting.
- The price-to-rent ratio. Divide the price by a year's rent. Above about 20, renting tends to win; below about 15, buying tends to win.
- Home value growth vs investment return. Faster appreciation favors buying, and higher market returns favor renting and investing.
- Discipline. The renter only comes out ahead if they actually invest the difference.
Mortgage interest and property tax can be tax-deductible if you itemize; most people take the standard deduction, so that's not included. See your exact payment with the mortgage calculator or what you can afford with the house affordability calculator.
Frequently asked questions
Is it cheaper to rent or buy?
Month to month, renting is often cheaper at first. Over time, buying builds equity and rent rises, so buying tends to win the longer you stay. The break-even is commonly 5 to 10 years, depending on prices, rates and how fast rents and home values grow.
What is the 5% rule for renting vs buying?
A rule of thumb that the unrecoverable yearly cost of owning (property tax, maintenance and the cost of capital) is about 5% of the home's value. If a year's rent is less than 5% of the price, renting may be the better deal.
Does this include the mortgage interest deduction?
No. Since the standard deduction roughly doubled in 2018, most homeowners don't itemize, so the deduction often doesn't apply.
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