Rent vs. Buy Analysis

The annual return you'd earn by investing your down payment and closing costs in the market instead of buying. This is used to model how the renter's capital grows over time in Chart 2. A common baseline is 7% — the long-run average real return of a diversified equity portfolio.

The annual rate at which your rent escalates. Historical U.S. rent growth has averaged 3–5% per year, though it varies significantly by market. A higher rent increase rate makes renting more expensive over time and improves the relative cost of buying.

The upfront cash applied toward the purchase price. A larger down payment reduces your loan, lowers monthly P&I, and may eliminate PMI if it reaches 20% of the home price. In Chart 2, the down payment is also the starting value of the renter's investment pool — the capital they keep invested instead of putting into a home.

Lender fees, title insurance, escrow charges, and prepaid items due at closing — typically 1.5–3% of the loan amount. In this calculator, closing costs are added to the renter's starting investment pool in Chart 2, since those funds would otherwise be invested if the purchase didn't happen.

Private Mortgage Insurance, required by most lenders when your down payment is less than 20% of the purchase price. It protects the lender — not you — against default. This calculator automatically drops PMI to $0 once your loan balance reaches 80% of the original purchase price, and marks that year on Chart 1.

Annual upkeep costs expressed as a percentage of the home's current value — covering routine repairs, system replacements, and general maintenance. Because it's tied to home value, this cost grows with appreciation. Financial planners commonly estimate 1–2% per year, though newer homes tend toward the lower end.

A fixed monthly fee charged by a homeowners association for shared amenities and community maintenance. Unlike maintenance, HOA fees are set by the association — not tied to home value — so they're modeled here as a flat dollar amount that does not grow with appreciation.

Annual property tax as a percentage of the original purchase price, with a separate annual growth rate applied each year. Tax rates vary widely by state and county — from under 0.5% to over 2%. The growth rate accounts for annual reassessments and local rate changes, historically averaging 2–3%.

Expected annual appreciation applied to the home's market value. This affects equity accumulation, the maintenance cost calculation, and the equity chart. Long-run U.S. home price appreciation has averaged roughly 3–4% annually, though local markets differ substantially.

The number of years over which all projections are run. A shorter horizon typically favors renting — buying involves high upfront costs that take years to recover. A longer horizon increasingly favors buying as equity compounds and the fixed mortgage payment becomes cheaper relative to rising rents.

Each year's buying cost sums six components: mortgage P&I (fixed for the life of the loan), property tax (grows annually), PMI (drops once the loan reaches 80% LTV), home maintenance (grows with home value), HOA (flat), and homeowners insurance (grows with inflation). Renting cost adds rent (grows annually) and renters insurance (grows with inflation). The chart plots both over your horizon so you can see when — and by how much — one becomes cheaper than the other.

The first year in which the cumulative cost of buying (including closing costs) falls below the cumulative cost of renting. Before that year, renting has cost less in total; after it, buying has. Closing costs push the break-even out — a higher closing cost means more years needed to recover the purchase expense. The break-even year is shown in the Summary Stats panel.

The buyer's equity at each year is the sum of three parts: the original down payment, the principal paid down on the mortgage to date (derived from amortization), and the appreciation gained on the home's value since purchase. This represents the net wealth locked in the home if you were to sell at that point, before selling costs.

Models how the renter's capital grows over time. The starting pool is the down payment plus closing costs — money the renter keeps invested instead of putting into a home. Each year, the pool grows at the opportunity cost rate. In years where buying is more expensive, the renter also adds the cost difference to their pool. In years where renting is more expensive, the pool absorbs that gap (floored at zero).

Rather than estimating when PMI ends, this calculator tracks your mortgage balance month-by-month using closed-form amortization to find the exact month your balance falls to 80% of the original purchase price — the standard LTV threshold for PMI cancellation. The annotated vertical line on Chart 1 marks that year precisely.

Mortgage P&I is computed using the standard fixed-payment amortization formula. The loan balance at any point in time is derived algebraically from the original loan amount, interest rate, term, and number of payments made — no month-by-month loop is needed. This gives accurate principal-paid and interest-paid totals for any horizon.

When Tax Benefits are enabled, the calculator estimates the annual income tax savings from itemizing deductions and subtracts them from the buy cost each year. The math runs in two parts. Federal savings: (mortgage interest that year + property tax that year, capped at $10,000 under the SALT limit) × your federal marginal rate. State savings: (mortgage interest + property tax, no SALT cap applied) × your state marginal rate. Mortgage interest is computed year-by-year using proper amortization — interest is front-loaded and declines each year as the principal balance falls, so the tax benefit is largest early in the loan and diminishes over time. The resulting annual savings are divided by 12 and subtracted from each year's monthly buy cost, which flows into Chart 1, the cost crossover calculation, and Chart 2's savings pool (since lower buy costs leave the renter less of a gap to reinvest). Totals shown in the Tax Benefits panel accumulate these year-by-year estimates across your full horizon.

This calculator models a 30-year (or custom term) fixed-rate mortgage. Adjustable-rate mortgages (ARMs), interest-only loans, and FHA/VA products with different PMI structures are not modeled. If you're considering an ARM, the true long-term cost comparison will differ from what this tool shows.

When enabled, the estimated federal and state income tax savings from itemizing — mortgage interest plus property taxes (capped at $10,000 under the federal SALT limit) — are subtracted from the buy cost in both charts and all summary stats. This makes the rent vs. buy comparison reflect after-tax ownership costs. The deduction is most valuable in early loan years when interest is highest and for itemizers in the 22%+ brackets. Tax savings reduce your tax liability; they are not a direct refund. Consult a tax advisor for your actual benefit.

All growth rates — rent, home value, inflation, property tax — are assumed constant year over year. In reality, these fluctuate significantly. The tool is best used to compare scenarios and stress-test assumptions (e.g., what if rent grows at 6% instead of 3%?) rather than to predict a precise outcome.

The renter's invested capital model assumes the renter consistently invests both the initial down payment capital and any monthly cost savings. In practice, this requires financial discipline — money not spent on housing doesn't automatically end up invested. If the renter spends rather than invests the difference, Chart 2's renter line overstates their actual wealth accumulation.

The equity figures in Chart 2 do not deduct selling costs (realtor fees, transfer taxes, etc.) that would reduce actual net proceeds at sale. When comparing buying vs. renting over a short horizon, factor in 5–6% of home value in selling costs — which can meaningfully shift the break-even calculation.