Is it cheaper to rent or buy a home?
Rent vs buy calculator
Buying ties up a down payment that could have been invested. Here is what each choice really costs over time, the year buying pulls ahead, and how fast the home has to grow for buying to be worth it.
Figures and method reviewed · How we calculate
To beat renting, this home has to gain at least
1.98% a year
At 4% a year, buying comes out $184,725 ahead after 10 years. Buying is cheaper from the first year.
- Net cost of renting
- $220,092
- Net cost of buying
- $35,367
- Break-even year
- Year 1
Your numbers
What each choice has cost you, year by year
Each point is the net cost if you stopped that year: everything paid out, less what selling the home would return after the mortgage, less what your investments earned. Lower is better.
Where the money goes over 10 years
| Item | Amount |
|---|---|
| Rent paid | $343,916 |
| Growth on the down payment, invested insteadThe opportunity cost of putting it into a home. | -$88,045 |
| Growth on what renting saved each year | -$35,779 |
| Net cost of renting | $220,092 |
| Item | Amount |
|---|---|
| Down payment | $140,000 |
| Mortgage repayments | $402,898 |
| of which interest | $311,538 |
| Maintenance and ownership costs | $60,000 |
| Selling the home, after repaying the mortgageSold for $1,036,171, with $468,640 still owed. | -$567,531 |
| Net cost of buying | $35,367 |
Both households spend the same each year. Whichever choice is cheaper that year invests the difference, which is why each side earns growth. Stamp duty, agent and legal fees, tax and insurance are not included.
How to read the result
The big number is the break-even home price growth: how fast the home has to rise in value each year for buying and renting to finish level over your chosen period. If you expect prices to grow faster than that, buying comes out ahead. Slower, and renting does.
It is the most useful figure on the page because price growth is the one input nobody knows. Rather than guess it and trust a verdict built on the guess, ask whether this particular home, in this particular market, is likely to beat a specific number.
The break-even year is the first year from which buying is cheaper than renting and stays cheaper. The two net costs are what each choice cost you over the period after everything it left you with: the sale proceeds for the buyer, investment growth for both.
A worked example
The calculator starts with a $700,000 home, $140,000 down, a 6% mortgage over 30 years, $6,000 a year in maintenance and ownership costs, and 4% price growth. The alternative is renting at $2,500 a month, rising 3% a year, with the down payment invested at 5%. Both are compared over 10 years.
- Buying borrows $560,000. The repayment is $3,357 a month: $402,898 over 10 years, of which $311,538 is interest. Add $60,000 of ownership costs. At the end the home sells for $1,036,171, and after repaying the $468,640 still owed, $567,531 comes back.
- Renting pays $343,916 in rent over the same 10 years. The $140,000 that would have been the down payment stays invested and grows by $88,045. Because renting is cheaper than owning each year here, the renter also invests the difference, which earns another $35,779.
The net cost of renting is $220,092 and the net cost of buying is $35,367, so buying comes out $184,725 ahead. Most of that comes from the home's growth: at 4% a year a $700,000 home is worth $1,036,171 after 10 years. Buying would still break even at 1.98%.
How much depends on price growth
| Home price growth | Result after 10 years |
|---|---|
| 0% a year | Renting ahead by $151,446 |
| 1% a year | Renting ahead by $78,211 |
| 2% a year | Buying ahead by $1,850 |
| 3% a year | Buying ahead by $89,295 |
| 4% a year | Buying ahead by $184,725 |
| 6% a year | Buying ahead by $402,147 |
The mortgage rate
| Mortgage rate | Monthly repayment | Break-even growth |
|---|---|---|
| 4% | $2,674 | 0.29% |
| 5% | $3,006 | 1.16% |
| 6% | $3,357 | 1.98% |
| 7% | $3,726 | 2.76% |
| 8% | $4,109 | 3.50% |
Every point on the mortgage rate raises the growth buying needs, because more of each repayment is interest that buys nothing. It is worth trying a rate a point or two above today's: fixed rates end, and the comparison runs for years.
The rent you would pay instead
| Monthly rent | Rent as a share of the price | Break-even growth |
|---|---|---|
| $1,500 | 2.6% a year | 3.86% |
| $2,000 | 3.4% a year | 2.96% |
| $2,500 | 4.3% a year | 1.98% |
| $3,000 | 5.1% a year | 0.90% |
| $3,500 | 6.0% a year | -0.28% |
Rent is the strongest lever after growth. Where rents are low compared with prices, as in many expensive cities, the home has to do much more of the work. Where rents are high, buying can win even with prices standing still.
How long you stay
| Comparison period | Break-even growth | At 4% growth |
|---|---|---|
| 3 years | 2.27% | Buying ahead by $38,685 |
| 5 years | 2.19% | Buying ahead by $71,604 |
| 10 years | 1.98% | Buying ahead by $184,725 |
| 20 years | 1.45% | Buying ahead by $600,068 |
The longer you stay, the less growth buying needs, because the mortgage is repaid and each year of rent saved compounds. With no buying or selling costs counted, buying is ahead from the first year in all of these. Those costs, below, are what make a short stay expensive.
The costs this calculator leaves out
Stamp duty or transfer tax, agent fees, legal fees and lender charges are not included. They differ by country and often by state, so leaving them out keeps the comparison the same everywhere. They are also the main reason buying usually takes years to pull ahead, so the break-even here is the optimistic end of the range.
As a rough allowance, suppose buying costs 3% of the price, $21,000 here, which a renter would have invested instead, and selling costs 2% of the sale price. On the same scenario the break-even growth rises from 1.98% to 2.59% a year. The real figures where you live may be higher or lower.
When renting tends to win
- You expect to move within a few years, before buying costs can be recovered.
- Rent is low compared with the price of a similar home.
- Mortgage rates are high compared with what your savings earn.
- You would genuinely invest the down payment and any monthly difference, rather than spend it.
When buying tends to win
- You plan to stay for many years, so growth has time to compound.
- Rents are high or rising quickly where you live.
- Repaying a mortgage is the saving you would actually do. A plan to invest the difference only helps if it happens.
Neither list is a recommendation. Owning brings security and control that no spreadsheet prices, and renting brings flexibility. The calculator measures money, and leaves those to you.
How it is calculated
- The mortgage uses standard amortisation at a fixed rate, repaid monthly.
- Rent rises once a year at the stated rate; the home's value grows once a year at the stated rate.
- Maintenance and ownership costs are a fixed amount each year.
- Both households spend the same each year. Whichever choice is cheaper that year invests the difference at the investment return, compounded annually. The renter starts with the down payment invested.
- At the end the home is sold at its grown value and the remaining mortgage is repaid from the proceeds. The net cost of each choice is what it paid out, less what it ends with.
Try your own figures in the calculator above, or read more about how these calculators work.
Questions about this calculator
How does the rent vs buy calculator work?
It follows two households with the same budget for the same number of years. One buys the home with a mortgage; the other rents and invests the down payment instead. Each year, whichever choice costs less invests the difference, so both have spent exactly the same by the end.
At the end of the period the buyer sells the home at its grown value and repays what is left of the mortgage. The net cost of each choice is what it paid out, less what it has to show for it: the sale proceeds for the buyer, investment growth for both.
What does the break-even growth rate mean?
It is how fast the home has to rise in value each year for buying and renting to finish level. If you expect prices to grow faster than that, buying comes out ahead over your chosen period; slower, and renting does.
It is the most useful figure on the page, because the growth rate is the one input nobody knows. Instead of guessing it and trusting the result, you can ask whether this particular home is likely to beat a specific number.
What is the break-even year?
The first year from which buying is cheaper than renting and stays cheaper until the end of the period. If buying only edges ahead briefly and then falls behind again, that is not counted as breaking even.
Why does buying often break even so quickly here?
Because the costs of getting in and out of a home are not included: no stamp duty or transfer tax, no agent or legal fees. In practice these can add up to several per cent of the price each way, and they are the main reason buying usually takes years to overtake renting.
If you want a rough allowance for them, add them to the down payment you could otherwise have invested, or treat the break-even growth rate here as the optimistic end of the range.
What is the opportunity cost of a down payment?
It is what the down payment would have earned if you had invested it instead of putting it into a home. It is shown in the breakdown as growth on the renter’s side, compounded each year at the investment return you enter.
Does it include tax, insurance or closing costs?
No. There is no income or capital gains tax, no tax relief on interest, no insurance, and no stamp duty, agent or legal fees. The rules differ by country and often by state, so leaving them out keeps the comparison the same wherever you are, at the cost of precision for any one place.
Are the figures adjusted for inflation?
No. Every amount is nominal, and maintenance and ownership costs stay at the same amount every year rather than rising. Rent and the home’s value change only at the rates you enter.
Does the mortgage rate change over time?
No. The rate is fixed for the whole period and repayments are calculated with standard amortisation. Real rates move, so it is worth trying a rate a point or two higher to see how sensitive the result is.
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Guides
- How much does a house need to appreciate to beat renting? Less than most people assume when rents are high, and far more when they are not. Here is the break-even growth across a range of rents and mortgage rates, and how to work out your own.
- Is it better to pay cash for a car or finance it? It comes down to one comparison: what your cash would earn against what the loan really costs. Here is how to make it properly, and the two offers that can flip it.
- Does a rental property beat a savings account? Only if it grows fast enough to cover the gap between its rent and its interest. Here is how fast that is, across yields and loan rates, before tax.
- Should you pay off your mortgage early or invest? Overpaying earns your mortgage rate for certain; investing has to beat it after tax and risk. Here is where the line falls, and what moves it.