How this calculator works
Renting and buying are compared on the same footing: the total cash each option consumes over the years you stay, after crediting back what you still own. Buying consumes the down payment, closing costs, every mortgage payment, property tax, insurance and maintenance, but at the end you own a home that can be sold. The calculator credits the sale price less selling costs and less any mortgage still outstanding. Renting consumes rent, which grows over time, but the money you did not put into a down payment stays invested and earns a return; the calculator credits that investment gain to the renting side. Three things drive the answer: how long you stay, how fast prices and rents grow, and how the return on your savings compares with the cost of the mortgage. Buying usually wins over long periods because each mortgage payment builds equity and the home grows, but the entry costs are large and are lost if you move soon. The model assumes a fixed-rate mortgage with monthly payments, constant property tax, insurance and maintenance in dollar terms, and no renovation spending, special assessments or tax deductions. It also ignores the non-financial reasons people choose one over the other, such as control over the property or the ability to move easily.
Formula
Loan = price - down payment. Monthly payment = loan x r / (1 - (1 + r)^-n), where r is the annual rate divided by 12 and n the number of monthly payments; it equals loan / n when r is zero. Buy net cost over y years = down payment + closing costs + payments made + (property tax + insurance + maintenance) x y - (sale price x (1 - selling costs) - mortgage balance). Rent net cost = total rent paid - investment gain on the down payment and closing costs, where the gain is (down payment + closing costs) x ((1 + i)^y - 1). The cheaper option is the one with the lower net cost at the end of the period.
Worked example
A $500,000 home with a $100,000 down payment, a 5% mortgage over 25 years and 1.5% closing costs. The loan is $400,000 and the monthly payment is $2,338.36. Staying ten years, with 3% price growth and 5% selling costs, the home sells for $671,958; after selling costs and the $295,698 mortgage balance the net proceeds are $342,662. Buying costs $100,000 + $7,500 + $280,603 in payments + $85,000 in tax, insurance and upkeep, less $342,662 of proceeds, a net cost of about $160,441. Renting at $2,200 a month rising 3% costs about $302,646 over ten years, but the $107,500 not tied up in the home earns about $51,626 at 4%, for a net cost near $251,020. Buying is ahead by about $90,579 over the decade, and it breaks even in the fifth year.
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Frequently asked questions
Why is the mortgage balance subtracted at the end?
Selling a home does not free the whole sale price. The remaining mortgage is repaid from the proceeds, so only the difference stays with you. Ignoring it would make buying look far better than it is.
What return should I use for the money I would otherwise invest?
A realistic after-tax return on a balanced portfolio, not the best year of the stock market. A range of 3% to 5% is common. A higher figure makes renting look better, so test more than one value.
Does the calculator include the mortgage interest deduction?
No. Tax treatment differs by country and by household, so it is left out. A deduction lowers the cost of borrowing and would shift the comparison towards buying.
What is left out?
Renovations, special assessments, home insurance deductibles, moving costs, the first-time buyer programmes in some countries, and the value of being able to renovate or stay put. Add these separately if they matter to you.
Why does a longer stay help buying?
Closing costs and selling costs are paid once and do not grow with time, while each mortgage payment reduces the balance and each year of price growth adds to the resale value. The fixed entry costs are spread over more years.