How to use this rent vs buy calculator
Start with the home you would buy and the rent for a similar one. The headline tells you which option leaves you with more wealth after the number of years you choose, and by how much.
- Home price and down payment / deposit: the home you are considering and the cash you would put in.
- Mortgage rate and loan term: from a quote if you have one.
- Monthly rent: for a comparable home in the same area. Comparing a small apartment with a family house will skew the result.
- Years to compare: how long you expect to stay before moving. This often matters more than anything else.
- Open "More options" to set buying and selling costs, yearly ownership costs, home price growth, rent growth and the return the renter earns on invested money.
How the comparison works
The calculator follows two people with the same money, month by month. One buys; the other rents and invests what the buyer spends upfront. Each month, whoever has the lower housing cost invests the difference at your chosen return.
Buyer's net worth = home value − loan balance − selling costs + any investments Home value grows at your home price growth rate · selling costs = selling cost % × home value at the time
Renter's net worth = (deposit + buying costs) invested + each month's (owning cost − rent) invested Owning cost = mortgage repayment + ownership costs (tax, insurance, maintenance) · rent rises once a year
Counting selling costs is deliberate. Your home is only worth what you would walk away with, so this is the fair comparison with an investment account you could cash out.
Worked example
A $450,000 home with a $90,000 deposit, a 6.5% 30-year mortgage, versus renting a similar home for $2,200 a month, compared over 10 years. Assumptions: 3% buying costs, 6% selling costs, 2% a year ownership costs, home prices and rent both rising 3.5% a year, and a 6% investment return.
- On day one the buyer has spent $103,500 ($90,000 deposit + $13,500 buying costs). The renter invests that same $103,500.
- In year 1, owning costs about $3,025 a month ($2,275 mortgage + $750 ownership costs) against $2,200 rent, so the renter invests the $825 difference each month.
- After 10 years the home is worth $634,769 and the loan is down to $305,194. After $38,086 of selling costs, the buyer's net worth is $291,489.
- The renter has invested $103,500 upfront plus $70,610 over time, now worth $285,415.
Buying comes out ahead by just $6,074, and only in year 10. Over 5 years renting wins by $24,477. The result is finely balanced: buying stays ahead over 10 years only if home prices grow faster than about 3.4% a year.
What decides the winner
Starting from the worked example, here is how changing one assumption at a time shifts the 10-year result:
| Change | Result after 10 years |
|---|---|
| None (default) | Buying ahead by $6,074 |
| Home prices grow 2.5% instead of 3.5% | Renting ahead by $42,737 |
| Home prices grow 4.5% | Buying ahead by $59,550 |
| Investments return 8% instead of 6% | Renting ahead by $44,445 |
| Investments return 4% | Buying ahead by $49,243 |
| Rent is $1,800 instead of $2,200 | Renting ahead by $68,921 |
| Rent is $2,600 | Buying ahead by $81,068 |
| Mortgage rate 5.5% instead of 6.5% | Buying ahead by $51,717 |
Time is the biggest lever
Buying and selling costs are paid once, so the longer you stay, the more years they are spread over. On the default numbers, buying is behind by $24,477 at 5 years, ahead by $57,977 at 15 years and ahead by $140,800 at 20 years. If you might move for work or family within a few years, renting usually wins.
Rent compared with price
The price-to-rent ratio here is about 17 (the price divided by a year's rent). Where homes are expensive relative to rents, renting and investing tends to win; where rents are high relative to prices, buying does. If you are weighing a home as an investment instead, the investment property calculator looks at it from a landlord's side.
Growth versus returns
The buyer's wealth grows with the home's value, which is leveraged: a 3.5% rise on a $450,000 home is a much bigger share of a $90,000 deposit. The renter's wealth grows with the investment return. The compound interest calculator shows how much a one-point difference in returns compounds to over time.
A quick rule of thumb: the 5% rule
A popular shortcut estimates the yearly unrecoverable cost of owning, the money you never get back, at about 5% of the home's value: roughly 1% for property tax, 1% for maintenance and 3% for the cost of tying up your money and paying interest. If you can rent a similar home for less than that, renting is likely cheaper. Here 5% of $450,000 is $22,500 a year, or $1,875 a month, below the $2,200 rent, so the rule leans towards buying. The full model above agrees, but only narrowly. Use the rule to screen; use the calculator to decide.
Tip: before you settle on buying, check the price is within reach with the home affordability calculator, then see your exact repayment with the mortgage calculator.
What this calculator leaves out
- Taxes. Many countries exempt gains on your main home (the US exclusion, Australia's main residence exemption, the UK's private residence relief, Canada's principal residence exemption), while investment returns are often taxed. Mortgage interest is deductible in the US only if you itemize.
- Behavior. The model assumes the renter really invests every spare dollar. Many people do not, and a mortgage's forced saving is a genuine advantage.
- Buying costs by country. US closing costs, Australian stamp duty and UK stamp duty land tax can differ by several percent of the price. Set the buying costs field to match where you live.
- Lifestyle. Security, the freedom to renovate and the flexibility to move are worth something that no spreadsheet captures. Use the numbers to see the financial trade-off, then decide what it is worth to you.
Frequently asked questions
Is it better to rent or buy a home?
How long do I need to stay for buying to make sense?
What is the price-to-rent ratio?
Why does the renter invest the deposit?
Does this include tax benefits?
What if I would not actually invest the difference?
This calculator gives estimates for education and planning. It is not financial advice, and your lender's figures may differ. See how we calculate.