How this calculator works
Rent vs buy is not simply "compare the mortgage payment to the rent." A mortgage payment is partly interest (a real cost) and partly principal (forced savings you get back when you sell), a home can gain or lose value, and a down payment ties up cash that could otherwise be invested. This calculator adds up all of those pieces year by year so the comparison reflects the full financial picture, not just the monthly cash outflow.
To keep the model transparent, it makes exactly these assumptions and no others: it does NOT model mortgage-interest tax deductions (they depend on your tax situation and whether you itemize), and it does NOT assume the month-to-month cash-flow difference between renting and buying gets invested. It DOES model one specific opportunity cost: the down payment itself is money that would otherwise be invested, so the calculator credits renting with the growth that down payment would have earned at the return rate you enter. Every other dollar is tracked as an actual cash cost, principal paydown, or appreciation gain.
The model
Cost of buying (through year k) = mortgage payments made + property tax + insurance + maintenance − principal paid down − home price appreciation + opportunity cost of the down paymentOpportunity cost of the down payment = down payment × [(1 + opportunity rate)^k − 1]Cost of renting (through year k) = monthly rent × 12 × [(1 + rent increase)^k − 1] ÷ rent increase (or simply monthly rent × 12 × k if rent never increases)Principal paid down and home appreciation are subtracted from the cost of buying because that value comes back to you when you sell (assuming you sell at the then-current market price). Property tax, insurance, and maintenance are calculated on the home's appreciated value each year, not the original purchase price, since assessments and premiums tend to track value over time.
Worked example: $400,000 home, $80,000 down, 6.5% mortgage vs. $2,200/month rent
- $400,000 home, $80,000 down (20%), 6.5% mortgage for 30 years, vs. $2,200/month rent rising 3%/year, 3%/year appreciation, 3.2% combined property tax + insurance + maintenance, and a 7% return assumed on the down payment if invested instead.
- Year 1: buying costs $27,095 net vs. $26,400 in rent — renting is $695 cheaper, mostly because so little of an early mortgage payment is principal and the down payment's opportunity cost is already accruing.
- By year 3, the gap has narrowed to $226 in renting's favor as rising rent and accumulating appreciation start to close the difference.
- Year 4 is the breakeven point: buying's net cost ($109,487) first drops below renting's cumulative cost ($110,448). By year 7, buying is ahead by $8,465 in total.
Frequently asked questions
Why does buying look more expensive at first even though I'm building equity?
Early mortgage payments are mostly interest, which this calculator counts as a real cost, while only the principal portion counts as equity built. Combined with property tax, insurance, maintenance, and the down payment's forgone investment growth, the first year or two of owning often costs more than renting on paper — even though you are also accumulating home equity.
Does this calculator account for mortgage interest tax deductions?
No. Whether an interest deduction actually reduces your taxes depends on whether you itemize, your tax bracket, and current tax law, all of which vary by household and by year. Leaving it out keeps the comparison honest and applicable to renters and buyers regardless of their tax situation; if you know your marginal tax rate, you can mentally credit buying with a modest additional benefit.
What is the 'opportunity cost of the down payment' and why include it?
A down payment is cash that becomes illiquid home equity instead of being invested. This calculator assumes that money could have earned the return rate you enter (for example, in a diversified portfolio) had you rented instead and invested it. It does not extend this assumption to the monthly payment difference between renting and buying — only to the down payment itself.
What happens if home prices fall instead of rise?
Enter a negative appreciation rate. The calculator will then subtract a negative number (add a real cost) for the change in home value, which typically pushes the breakeven year later or removes it within the years shown — reflecting that a falling market erodes one of buying's main financial advantages.
Does a longer time horizon usually favor buying?
Generally yes, because one-time costs of ownership (the down payment's opportunity cost, in this model) are spread over more years, while rent compounds upward every year you stay. That is why the yearly table, not just a single year's numbers, is the most useful part of the comparison.