Rent vs Buy Calculator
With house price 400000 usd, down payment 80000 usd, mortgage rate 6.5 percent, rent a month 2200 usd and 5 more fields, rent vs buy comes to -$399 — buying minus renting. It is reached in 12 steps, the last of which is 161599.29 - 161998.58, and each one is printed on the page with its numbers filled in. The formula is the one published by US Consumer Financial Protection Bureau, not an approximation fitted to it.
What renting and buying each cost over the years you plan to stay, counting the money buying ties up as well as the money it spends.
Formula and sources checked · How we check
House price 400000, Down payment 80000, Mortgage rate 6.5, Rent a month 2200
-$399
Buying minus renting for the example below. Editing a field recomputes the calculator below; this figure holds the answer the page was loaded with.
It is written into the HTML rather than drawn by a script, so a search engine reading this page without running JavaScript still finds an answer.
- Loan
max(0, 400000 - 80000)$320,000- Mortgage payment
320000 * 0.0054167 / (1 - pow(1 + 0.0054167, -360))$2,023- Tax, insurance and upkeep a year
400000 * (1.1 / 100 + 0.005 + 0.01)$10,400- Everything paid out while owning
(2022.6177 * 12 + 10400) * 7 + 400000 * 0.03$254,700- Mortgage still owed at the end
$289,332- What the house is worth then
400000 * pow(1 + 3 / 100, 7)$491,950- Left after selling and repaying
491949.55 * 0.94 - 289331.98$173,101- Net cost of buying
254699.88 + 80000 - 173100.59$161,599- Rent paid over the period
2200 * 12 * (pow(1 + 3 / 100, 7) - 1) / (3 / 100)$202,289- What the deposit would have grown to
80000 * pow(1 + 6 / 100, 7)$120,290- Net cost of renting
202289 - (120290.42 - 80000)$161,999- Buying costs this much more
161599.29 - 161998.58-$399.29
Worked example
On a $400,000 house against $2,200 rent over seven years, the two land within $400 of each other — buying is fractionally cheaper once the deposit’s lost investment growth and the 6% cost of selling are counted. Seven years is where this particular comparison breaks even; shorten it and renting wins clearly, lengthen it and buying does. The answer is about time, not about the price.
How to work it out yourself
- 1.Set the years honestly. Buying loses on a short horizon because the transaction costs — roughly 3% to buy and 6% to sell — are paid whatever happens.
- 2.Do not leave the investment return at zero. A deposit sitting in a house is a deposit not sitting in an index fund, and ignoring that is what makes naive comparisons favour buying.
- 3.Maintenance is included at 1% of the price a year. It is a rule of thumb rather than a rule, and on an older house it is optimistic.
The formula
- Loan
max(0, 400000 - 80000) - Mortgage payment
320000 * 0.0054167 / (1 - pow(1 + 0.0054167, -360)) - Tax, insurance and upkeep a year
400000 * (1.1 / 100 + 0.005 + 0.01) - Everything paid out while owning
(2022.6177 * 12 + 10400) * 7 + 400000 * 0.03 - Mortgage still owed at the end
- What the house is worth then
400000 * pow(1 + 3 / 100, 7) - Left after selling and repaying
491949.55 * 0.94 - 289331.98 - Net cost of buying
254699.88 + 80000 - 173100.59 - Rent paid over the period
2200 * 12 * (pow(1 + 3 / 100, 7) - 1) / (3 / 100) - What the deposit would have grown to
80000 * pow(1 + 6 / 100, 7) - Net cost of renting
202289 - (120290.42 - 80000) - Buying costs this much more
161599.29 - 161998.58
Source: US Consumer Financial Protection Bureau — Your Money, Your Goals, US SEC Investor.gov — compound interest calculator
Questions people actually ask
- How long do I have to stay for buying to win?
- Long enough to outrun the transaction costs, which is usually five to eight years at ordinary rates and appreciation. Below that, the roughly 9% paid to buy and sell dominates everything else. This is why the standard advice is about the length of stay rather than about the price.
- Why count the deposit as a cost?
- Because it could have been earning. A $80,000 deposit at 6% becomes $120,000 in seven years, and forgoing that is a real cost of owning even though no money leaves your account. Comparisons that skip it — most of them — make buying look better than it is.
- Is rent really "throwing money away"?
- No more than mortgage interest is. In the early years of a loan most of the payment is interest, which builds no equity either — on a 6.5% loan the first year is about 85% interest. Rent buys housing; interest buys the use of money. Only the principal portion and the appreciation actually accumulate.
- What about the tax deduction on mortgage interest?
- Not included here, because it applies to fewer households than it used to. Since the standard deduction roughly doubled in 2018, most borrowers do not itemise at all, and for them the deduction is worth nothing. Where it does apply, it reduces the cost of owning by a fraction of the interest.
Related
- Mortgage Payment CalculatorMonthly principal-and-interest payment on a fixed-rate mortgage, plus total interest paid over the full term.
- Home Affordability CalculatorThe house price your income supports under the 28/36 rule, with property tax, insurance and HOA inside the limit rather than added on top.
- Rent Affordability CalculatorWhat rent your income supports under both the 30% rule and the stricter 28/36 debt-to-income test.
- Rental Property CalculatorCap rate, cash flow and cash-on-cash return on a rental, counting the three costs that turn a positive spreadsheet negative.
- Loan Payment CalculatorMonthly payment and total interest on any fixed-rate instalment loan — car, personal or student.
- Credit Card Payoff CalculatorHow many months a card balance takes to clear at a fixed monthly payment, and what the interest costs.
Put this calculator on your site
Free, no attribution required beyond the link.
<iframe src="https://rulecalculators.com/embed/rent-vs-buy" width="100%" height="420" style="border:1px solid #e7e4de;border-radius:12px" title="Rent vs Buy Calculator"></iframe>