Rent vs Buy Calculator

How to use this tool

Choose what to calculate. "Compare buying and renting" gives each side's wealth after the years you choose, the winner, the gap and the year buying pulls ahead. "Break even rent" solves for the monthly rent at which the two finish level. "Sensitivity table" shows the winner across four appreciation rates and four investment returns, and each cell opens as a full comparison. Choose semi annual compounding for a Canadian fixed rate mortgage.

The input people most often get wrong is the rent. It must be the rent for a home comparable to the one you would buy, or the answer means nothing. Next comes the number of years: enter how long you would really stay, because selling costs take years to pay back. Appreciation and investment return are assumptions, so try a range.

What the calculation is doing

Both people start with the same money. The buyer puts the down payment and closing costs into the home; the renter invests that money. Each month the buyer pays the mortgage payment, property tax, insurance and maintenance, and the renter pays rent, which rises each year. Both sides spend the same cash, and whoever spends less invests the difference. In year one the default buyer spends $3,511.61 against $2,800 of rent, so the renter invests $711.61 a month. If rent later passes the buyer's cost, the buyer invests the gap.

At the horizon the buyer holds the home value, less selling costs, less the mortgage still owed, plus any invested surplus. The renter holds the portfolio. The payment is loan × r ÷ (1 − (1 + r) to the power −n), with r = rate ÷ 12 for US style monthly compounding, or (1 + rate ÷ 2) to the power 1 ÷ 6 minus 1 for a Canadian fixed rate. Investments grow at (1 + return) to the power 1 ÷ 12 a month. Property tax and maintenance follow the home's value, and insurance is flat.

The break even year is the first year end at which the buyer is ahead, counting selling costs as if the buyer sold that day. The break even rent is found by bisection, which works because a higher rent always leaves the renter with less to invest and the buyer with more.

Why rent is not wasted money and buying does not always win

"Rent is throwing money away" forgets that owners throw money away too. In the default case the buyer pays $242,497 of interest, $57,319 of property tax, $18,000 of insurance and $57,319 of maintenance over ten years, plus $55,317 to buy and to sell. That is $430,453 that never comes back, against $385,186 of rent. What does come back is the $60,895 of principal repaid and whatever the home gains.

"Buying always wins" forgets the renter's side. The $115,000 of down payment and closing costs can be invested instead, and at 6% it grows to $205,947 in ten years with no further deposit. Cox and Followill (Journal of Financial Planning, 2018) compared net ending wealth over 30 years in six US metropolitan areas, and renting and investing the difference won in three of them at a 15% tax rate.

The Cleveland Fed (Ergungor and Zaman, 2011) uses the same method: the renter invests everything the owner would have spent, and the two are compared over a holding period. They add that people differ in risk tolerance, so they cannot say whether buying is right for you. This tool does the arithmetic on your assumptions and stops there.

Why the years you stay matter

Buying front loads its costs. Closing costs of 3% and selling costs of 6% take $45,000 on day one: the buyer is worth $70,000 and the renter $115,000. Renting leads by $34,732 after 3 years, $24,977 after 5 and $12,439 after 7. Buying first leads in year 9, by $12,593 at year 10, $75,618 at year 15 and $550,054 at year 30.

Freddie Mac says buying may make sense if you plan to stay at least five to seven years; here the crossing is later. The defaults are not harsh. Closing costs of 3% sit inside Freddie Mac's 2% to 5% of the price and the Financial Consumer Agency of Canada's 1.5% to 4%. Freddie Mac puts agent commissions at 3% to 8% of the sale price plus 2% to 4% for other seller fees, so 6% selling costs are near the low end, and Fannie Mae's maintenance rule of thumb is 1% to 4% of value a year against the default 1%.

How appreciation and investment return swing the result

The table shows the winner and the gap after 10 years, everything else at the default. Green favours buying, orange favours renting, and each cell opens the full comparison, with the break even year.

Buying wins in 8 of 16 cells. At 6% growth and a 3% return buying leads by $267,949; at 0% growth and a 9% return renting leads by $211,164. The default gap of $12,593 sits between them and is small enough that a point on either assumption flips the winner. A close result is a reason to weigh the risks, not to pick a side.

What the numbers cannot tell you

The tool is arithmetic on steady assumptions. Real prices can fall, and the mortgage magnifies both gains and losses, so a forced sale in a down year can cost far more than any cell in the table shows. Returns are not steady either. Income tax is left out, including the US mortgage interest deduction and tax on the renter's gains, and rent control could cap the renter's costs. A small gap either way is a tie.

Break even rent by years compared

The break even rent is the starting monthly rent at which the two finish level. At the defaults and 10 years it is $2,731, about 6.56% of the price a year. It falls as the horizon lengthens, from $3,140 at 5 years to $2,496 at 20. If the rent for a comparable home is above the figure, buying is ahead.

A worked example you can check on paper

Take the default: a $500,000 home, 20% down, 6.5% over 30 years, 1% property tax, $1,800 insurance, 1% maintenance, 3% closing costs, 6% selling costs, 3% appreciation, $2,800 rent rising 3% a year, a 6% return and 10 years. The loan is $400,000, closing costs are $15,000, and the renter starts with $115,000. With r = 0.065 ÷ 12 = 0.0054167 and n = 360, the payment is 400,000 × 0.0054167 ÷ (1 − 1.0054167 to the power −360) = $2,528.27.

Year one adds tax of $416.67, insurance of $150.00 and maintenance of $416.67, so the buyer pays $3,511.61 a month against $2,800.00 of rent and the renter invests $711.61. By year 10 the buyer pays $3,765.58 against rent of $3,653.36, so the buyer never has a surplus to invest.

Buyer: the home is worth 500,000 × 1.03 to the power 10 = $671,958.19, selling costs at 6% are $40,317.49, and after 120 payments the loan is $339,104.51. Wealth = $671,958.19 − $40,317.49 − $339,104.51 = $292,536.19.

Renter: $115,000 grows to 115,000 × 1.06 to the power 10 = $205,947.49. The 120 deposits total $50,845.10 and grow to $73,995.21, which needs a spreadsheet or the year by year table. Wealth = $279,942.70, so buying leads by $12,593.49.

Mistakes that catch people out

Comparing unlike homes. A three bedroom house carries a mortgage, tax and upkeep; a one bedroom flat carries rent. Use the rent of a comparable home.

Counting only the mortgage payment. Tax, insurance and maintenance add $983.33 a month to the $2,528.27 payment in the default case, and maintenance alone is $5,000 a year at 1%.

Treating principal as spent money. Principal repaid is equity: $60,895 over ten years shows up in the buyer's wealth as a smaller loan. Interest, tax, insurance, maintenance and the transaction costs are the real costs.

Assuming the renter invests the difference. The model renter puts every spare dollar into the portfolio. A real one may spend it, and then buying works as forced saving.

Ignoring how long you will stay. A move in year three turns a good purchase into a loss, because the closing and selling costs are spent and little of the loan is repaid.

Popular calculations

Each opens the calculator with those values filled in, and they can be changed once it is open. Unless shown otherwise they use 20% down, a 6.5% mortgage over 30 years, 1% property tax, $1,800 insurance, 1% maintenance, 3% closing costs, 6% selling costs, 3% appreciation, 3% rent increases, a 6% investment return and 10 years.

Home price against a rent that fits

How many years you stay

Appreciation and investment return

Break even rent

Canadian fixed rate mortgages

These use a 5% rate with semi annual compounding and a 25 year term.

Sensitivity tables

How this was checked

Two independent formulations were compared on 3,010 cases, including the default, Canadian compounding, zero rate, zero rent, no loan, a loan paid off early, falling prices and 3,000 random inputs. One sums every monthly deposit grown by its own factor, with the balance from the closed form; the other is a net cost account, buyer outlay minus equity gained against renter outlay minus investment gain. They agreed within a millionth of a dollar, and both sides' cash outlays matched.

A month by month amortization of 70 loans, US and Canadian, matched the closed form payment and ended at zero. The break even year matched a year by year scan on 72 cases, and the break even rent matched a scan in whole dollars then cents, within one cent. The payment maths reproduces $1,199.10 for $200,000 at 6% over 30 years and the Cleveland Fed's $483 for $90,000 at 5%.

The behaviour matches published work: shorter horizons favour renting (Cox and Followill), buying needs several years (Freddie Mac), and no source gives a universal answer. Cost defaults follow Freddie Mac, Fannie Mae and the Financial Consumer Agency of Canada, tax statements the CRA and IRS, and compounding the Interest Act and Bank of Canada notes. Each source named here was opened and read for the figures quoted.

Common questions

Is it better to rent or buy a home?

Neither wins every time. At the defaults buying is ahead by $12,593 after 10 years, but renting is ahead at 0% appreciation, at a 9% return, and for any stay under nine years. Appreciation, return and years decide it, and nobody knows the first two in advance. The Cleveland Fed authors say they cannot tell you whether buying is the right move for you.

How long do you have to stay for buying to win?

At the defaults buying first pulls ahead in year 9. Freddie Mac says buying may make sense if you plan to stay at least five to seven years, and Cox and Followill found that a shorter horizon generally favours renting. With 5% appreciation the tool gives year 4, and with 0% there is no break even in 10 years. Change the years and the costs for your own number.

What does the calculator assume about the renter?

The renter invests the down payment and closing costs on day one, and each month whichever side spends less invests the difference. Growth is steady, compounded monthly, with no tax on gains. If a real renter spends the difference, the result flatters renting. Rent rises at the rate you enter; rent control and a lease that ends early are not modelled.

Is the profit from selling a home taxed?

The tool ignores tax. The CRA says that if a property was your principal residence for every year you owned it, you do not pay tax on the gain, but you must report the sale and designation on your return. In the US, IRS Topic 701 lets you exclude up to $250,000 of gain, or $500,000 on a joint return, if you owned and lived in the home for at least two of the five years before the sale. Gains above that, or homes not lived in, are treated differently.

Why does the Canadian option compound semi annually?

Section 6 of the Interest Act requires a mortgage on real property to state the rate as calculated yearly or half yearly, not in advance, and Bank of Canada staff notes compute Canadian mortgage payments assuming monthly payments and semi annual compounding. The monthly rate is (1 + rate ÷ 2) to the power 1 ÷ 6 minus 1. A $400,000 loan at 5% over 25 years costs $2,326.42 a month that way against $2,338.36 with monthly compounding. Check your contract, since lenders and variable rate products differ.

What does the calculator leave out?

Income tax, including the US mortgage interest deduction that Freddie Mac mentions and tax on the renter's gains; mortgage default insurance or PMI; condo or HOA fees, which belong in the maintenance box; moving costs; and differences in utilities and renter's insurance. Insurance is held flat, and prices and returns are steady in the model, not in life.

Related Calculators and Reference

• Mortgage Calculator: the full payment with tax, insurance and extra payments for the home you are considering.
• Home Affordability Calculator: how much house your income supports before you compare it with renting.
• Refinance Calculator: what a lower rate would save once you own.
• CAGR Calculator: turn past prices into a yearly growth rate for the appreciation box.
• Inflation Calculator: what rising rent and a fixed mortgage payment mean in real terms.
• Federal Reserve Bank of Cleveland: Buy a Home or Rent, a Better Way to Choose: the rent versus buy method this tool follows, with its uncertainty analysis.