Rent vs. Buy: the actual math.
"Renting is throwing money away" is folk wisdom, not math. This calculator compares both paths as bundles of cash flows over your horizon. It includes property tax, insurance, PMI, maintenance, HOA, selling commission, and the opportunity cost of every dollar locked up in the down payment instead of invested.
The home you would buy
= $25,000 cash up front
= $15,000 cash at signing
National long-run average is roughly 3% real.
Typical agent split is 5-6% of sale price.
Buying carrying costs
National average ~1.1%. NJ ~2.5%, HI ~0.3%.
Default is illustrative. Get a real quote for your area.
Typical range 0.5% to 1.5%.
Common rule of thumb is 1% per year.
Set to 0 if there is no HOA.
If you rent instead
Long-run US average is roughly 3%.
Horizon and the alternative
How long you plan to stay before selling or moving.
Real (after-inflation) annual return. Broad-market index funds have averaged roughly 7% real over long horizons.
Under the entered assumptions, the renter who invests the down payment ends the 7-year horizon with a lower net cost. The breakdown below shows how each path got there. Renting stays cheaper for the full 7-year horizon at these inputs. Extend the horizon to find the break-even year.
If you buy
If you rent and invest the down payment
Total the buyer's out-of-pocket cost over 7 years: the $25,000 down payment, the $15,000 closing costs, and every mortgage payment, property tax, insurance, PMI, maintenance, and HOA dollar along the way.
Buying out-of-pocket = down payment + closing costs + carrying costs
At the end of the horizon the buyer sells for $615K, pays the selling commission, and clears the remaining loan. Subtracting that recovered equity gives the net cost of buying.
Net cost of buying = out-of-pocket - equity recovered at sale = $286,717
The renter pays rent and renter's insurance, but invests the $40,000 down-payment-plus-closing instead. Subtracting that investment growth gives the net cost of renting.
Net cost of renting = rent + renter's insurance - investment growth = $234,627
The growth on the down payment is the opportunity cost a house silently charges.
Whichever net cost is lower wins. Here renting comes out ahead by $52,089 over the 7-year horizon.
Gap = $234,627 - $286,717 = $52,089 (negative means buying wins)
This is one financial input to a decision that also turns on stability, mobility, and life events the math does not see.
Assumptions
- The mortgage interest rate stays constant for the full horizon.
- Home appreciation is straight-line at the rate entered.
- Rent inflates at the rate entered, applied at the start of each year.
- Maintenance scales with home value at the percent entered, every year.
- The invested alternative-use capital (down payment plus closing costs) earns the rate entered, compounding annually.
- The buyer sells at the end of the horizon and pays the entered selling commission.
- Tax effects are off by default. When toggled on, the calculator estimates the federal benefit only, using the entered marginal rate, and assumes the user itemizes deductions. State tax effects are not modeled.
Limitations
- Adjustable-rate, interest-only, FHA, VA, or jumbo loan structures.
- State or local transfer taxes.
- Rental income. This is not a property-investment calculator.
- The cost of life events that change the horizon (divorce, job relocation, kids changing schools).
- Whether buying or renting is right for your situation. The math is one input. The decision is yours.
- It is not financial advice. It is not a recommendation to buy or rent.
- It does not account for the personal value of homeownership (or of mobility), the emotional value of stability, or the qualitative side of either choice.
- The output is an estimate. The decision is yours.
- For a complex situation, a real estate professional, a mortgage broker, and a CFP each have something to add.
Common questions.
How does a rent vs. buy calculator work?
It compares two streams of cash flows over a chosen horizon. The buying side adds up the down payment, closing costs, mortgage payments, property tax, insurance, PMI, maintenance, HOA, and the selling commission at exit, then subtracts the equity recovered when the home is sold. The renting side adds up rent and renter's insurance, then subtracts the future value of the same down payment if it had been invested in a broad-market index fund instead. Whichever side is lower over the chosen horizon is the financially cheaper path under the entered assumptions.
What is the break-even year for buying vs. renting?
The break-even year is the horizon at which buying becomes cheaper than renting. Below that horizon, the transaction costs (closing on the way in, commission on the way out) eat the appreciation, so renting plus investing the down payment usually wins. The general rule of thumb from real estate economists is 5 to 7 years in typical markets, but the actual break-even depends heavily on the mortgage rate, the rent inflation rate, the home appreciation rate, and the alternative-use return on the down payment.
Why does the down payment have an opportunity cost?
Every dollar locked up in a house is a dollar that is not invested in stocks, bonds, or other assets. If a $40,000 down payment plus closing costs were invested in a broad-market index fund at 7% real return for 30 years, it would grow to roughly $305,000. That foregone growth is the silent counterfactual against which any home appreciation should be measured.
Does this calculator include the tax benefit of mortgage interest?
Yes, optionally. The tax-benefit toggle estimates the federal benefit using the entered marginal rate and assumes the user itemizes deductions. For most filers since 2018, the standard deduction is larger than the itemizable amount and the actual tax benefit of mortgage interest is zero or near zero. Leave the toggle off if you take the standard deduction. State tax effects are not modeled.
Sources
- The Rent-Versus-Buy Decision, Federal Reserve Bank of New York (Liberty Street Economics)
- House Price Index, Federal Housing Finance Agency
- Facts and Statistics: Homeowners Insurance, Insurance Information Institute
- Publication 936, Home Mortgage Interest Deduction, Internal Revenue Service
Educational simulation only. Real housing decisions involve closing costs, state and local taxes, life events, and qualitative factors not modeled here. ClearMoneySchool does not provide personalized financial, real estate, or tax advice.