MortgageMath

Rent vs. Buy Calculator

By MortgageMath Editorial Team Last reviewed Methodology

This rent vs. buy calculator computes the true financial cost of each option — including equity, appreciation, and the opportunity cost of your down payment — to find the year when buying becomes cheaper than renting.

Break-Even Point

Year 10

Buying becomes cheaper than renting after 10 years with these inputs.

Buying net cost (Yr 10)

$190,138

Renting net cost (Yr 10)

$197,761

Home value (Yr 10)

$564,240

Home equity net of sale (Yr 10)

$256,500

Monthly mortgage P&I: $2,105·Monthly rent: $2,000·Down payment: $80,000
$18k$63k$108k$153k$198kYr 1Yr 2Yr 3Yr 4Yr 5Yr 6Yr 7Yr 8Yr 9Yr 10Buying net costRenting net costBreak-even

Net costs include 3% buying closing costs, 6% selling costs, 1% annual maintenance, and property taxes. Investment gains assume the down payment grows at the specified investment return rate.

How This Calculator Works

The rent vs. buy decision is one of the most consequential financial choices most Americans face. A simple monthly payment comparison — "my mortgage would be $2,100 vs. $2,000 rent, so renting is cheaper" — misses most of the picture. This calculator models the true net cost of each path over time, accounting for equity accumulation, home appreciation, rent escalation, and the investment return you forgo by putting money into a down payment instead of financial assets.

The Buying Net Cost Model

On the buying side, we total every dollar that leaves your wallet: the down payment, buying closing costs (typically 3% of the purchase price for title insurance, lender fees, and prepaids), monthly mortgage payments, annual property taxes, and annual homeowner's insurance and maintenance costs (estimated at 1% of home value per year). From this total, we subtract the equity you would recover if you sold at the end of each year — home value appreciated at your stated rate, minus the remaining mortgage balance, minus selling costs of approximately 6% (realtor commissions plus title and closing fees).

The result is your net cost of homeownership: the money you spent on housing that you cannot recover. Early on, this number is large because closing costs are fresh and your mortgage is barely paid down. Over time, appreciation and principal paydown work in your favor, and the net cost shrinks relative to what you have spent.

The Renting Net Cost Model

On the renting side, we total all rent paid, growing annually at your specified rent inflation rate. But renters have one key financial advantage: they keep the down payment capital. We credit renters for the investment returns they would earn by investing the down payment in a diversified portfolio (e.g., a total market index fund) at the rate you specify. The renter's net cost is rent paid minus investment gains earned on the down payment above the initial principal.

This opportunity cost adjustment is often omitted in simplified comparisons. A $80,000 down payment growing at 7% annually becomes approximately $157,000 after 10 years — generating $77,000 in investment gains that partially offset rent paid. Ignoring this advantage overstates the financial benefit of buying.

The Break-Even Year

The break-even year is when the buyer's net cost falls at or below the renter's net cost for the first time. Before this year, renting has been the better financial choice. After this year, buying is financially ahead. The break-even year is the minimum time you should plan to stay in a home for buying to be the rational financial decision given your inputs.

Example Scenarios

The following examples use consistent assumptions — 6.89% mortgage rate, 30-year term, 3.5% annual home appreciation, 3% rent inflation, 7% investment return, and 1.1% property tax rate — with only home price and rent varied. All examples assume a 20% down payment.

Scenario Home Price Down Payment Monthly Rent Mortgage P&I Break-Even
Median US market $400,000 $80,000 $2,000/mo $2,106/mo ~10 years
Mid-tier market $500,000 $100,000 $2,500/mo $2,633/mo ~10 years
Expensive market $700,000 $140,000 $3,000/mo $3,686/mo ~16 years

Mortgage P&I calculated at 6.89% for 30 years. Break-even estimates use the calculator above with default assumptions. Actual results depend on local market conditions.

The expensive market scenario illustrates a critical dynamic: when the rent-to-price ratio is unfavorable (i.e., rent is low relative to the home price), the break-even extends significantly. In the $700,000 scenario, rent of $3,000 is only 0.43% of the purchase price per month — well below the "1% rule" threshold. The high purchase price means large closing costs, a large down payment with significant opportunity cost, and high property taxes and maintenance, all of which take many years of appreciation to overcome.

In contrast, the $400,000 median market scenario achieves break-even in approximately 10 years. The rent-to-price ratio is higher (0.5%), transaction costs are proportionally smaller, and the down payment's opportunity cost is more manageable relative to the asset being acquired.

Key Factors That Affect Your Break-Even

Rent-to-Price Ratio

This is the annual rent divided by the home purchase price. A higher ratio (e.g., 5–7%) favors buying sooner; a low ratio (1–3%) extends the break-even. In expensive coastal cities, ratios often fall below 3%, pushing break-even past 10 years. In affordable Midwest markets, ratios above 5% can produce break-even in 4–5 years.

Home Appreciation Rate

Faster appreciation builds equity more quickly and shortens the break-even. The US national long-term average is approximately 3.5% per year, but local markets vary enormously — from 1% in flat markets to 6–8% in high-growth metros. Historical appreciation does not guarantee future performance.

How Long You Plan to Stay

Buying requires absorbing 3% closing costs upfront and 6% selling costs at exit — roughly 9% of home value in transaction friction. This cost must be amortized over the years you own. If you move in 2 years, you rarely recover these costs. If you stay 10+ years, transaction costs become a small fraction of total value.

Mortgage Rate Environment

Higher mortgage rates increase monthly payments and total interest paid, raising the cost of buying relative to renting. A 7% rate increases the buying cost significantly compared to the 3% rates of 2020–2021. At current rates (~6.89% in early 2026), the break-even is longer than it was in the low-rate environment.

Investment Return Assumption

If you are a disciplined investor who would actually invest the down payment, a high investment return assumption (6–8%) makes renting more competitive. If the down payment would sit in cash, use a low rate (1–3%). The calculator defaults to 7%, consistent with long-term S&P 500 returns.

Property Tax Rate

Property taxes in the US range from under 0.5% (Hawaii, Alabama) to over 2% (New Jersey, Illinois). High-tax states significantly increase the annual cost of homeownership. Enter your local property tax rate for an accurate comparison — the national default of 1.1% may not reflect your market.

When Does Buying Make Sense — and When Does It Not?

Buying likely makes sense when:

  • ✓ You plan to stay at least 5–7 years
  • ✓ Local rent-to-price ratio is above 4–5%
  • ✓ Your market has historically strong appreciation
  • ✓ Rents are rising rapidly in your area
  • ✓ You value stability and control over your living space
  • ✓ You would not otherwise invest the down payment

Renting likely makes sense when:

  • ✓ You may relocate within 3–4 years for career or lifestyle
  • ✓ Local home prices are very high relative to rents
  • ✓ You are a disciplined investor with a strong portfolio
  • ✓ Your income or employment is uncertain
  • ✓ You prefer flexibility and low maintenance responsibility
  • ✓ Buying would stretch your finances uncomfortably

The financial break-even is an important input, but it is not the only one. Many people buy slightly before the financial break-even because of non-financial benefits — stability, community, the freedom to renovate — that have real value even if they are hard to put in a spreadsheet. Others rent well past the break-even because their career requires mobility. Use this calculator to understand the financial picture clearly, then weigh it against your personal circumstances.

Disclaimer: This calculator is for informational and educational purposes only. It uses simplified models and historical averages that may not reflect your local market conditions or future economic environment. The break-even year and cost estimates are projections, not guarantees. Consult a licensed financial advisor, real estate professional, or mortgage lender before making housing decisions.

Frequently Asked Questions

How does this rent vs. buy calculator work?
The calculator computes a "net cost" for each option over time. For buying, it adds up your down payment, mortgage payments, property taxes, insurance, and maintenance — then subtracts the equity you would recover if you sold (net of a 6% selling cost). For renting, it adds up all rent paid — then subtracts the investment gains you would earn if you had invested the down payment in the stock market instead. The year when the buyer's net cost falls below the renter's net cost is your break-even point.
What is the "break-even year" in a rent vs. buy analysis?
The break-even year is when the total financial cost of homeownership becomes equal to, or less than, the total cost of renting. Before that point, renting is cheaper on a true cost basis; after that point, owning is cheaper. The break-even year depends heavily on your local home appreciation rate, the rent-to-price ratio, and how long you plan to stay. Nationally, break-even typically falls between 4 and 10 years, but it can be longer in high-priced coastal markets.
What costs are included on the buying side?
Buying costs in this calculator include: (1) down payment, (2) buying closing costs (estimated at 3% of home price for title, lender fees, and prepaid items), (3) monthly mortgage principal and interest, (4) annual property taxes, (5) annual homeowner's insurance and maintenance (estimated at 1% of home value each year). When computing net cost, we subtract the equity you would recover in a hypothetical sale at the analysis year, after deducting 6% for realtor commissions and selling closing costs.
What costs are included on the renting side?
Renting costs include your monthly rent, escalating each year by the rent inflation rate you specify. On the benefit side, renters are credited for the investment returns they would earn by investing the equivalent down payment in a diversified portfolio. This opportunity cost is a critical part of the comparison — a $80,000 down payment growing at 7% annually becomes approximately $157,000 after 10 years, which substantially reduces the renter's net cost.
What is the opportunity cost of a down payment?
The opportunity cost of a down payment is the investment return you forgo by tying up capital in a home instead of investing it in financial assets. For example, a $80,000 down payment invested in an index fund returning 7% annually would grow to about $157,000 in 10 years — a $77,000 gain you give up by buying. This calculator credits renters with these investment gains, making the rent vs. buy comparison more accurate than simply comparing monthly payments.
Does the calculator account for home price appreciation?
Yes. The home appreciation rate you enter compounds annually, increasing your home's value and the equity you build over time. The US long-term average is approximately 3.5% per year (roughly 1% above general inflation), but local markets vary widely. High-appreciation markets like San Francisco or Seattle reduce the break-even timeline significantly, while flat or declining markets can make buying financially unfavorable for many years.
How does rent inflation affect the break-even calculation?
Rent inflation is the annual rate at which your rent is expected to increase. A higher rent inflation rate makes renting more expensive over time and shortens the break-even timeline — favoring buyers. The US average rent increase has been approximately 3–4% annually over the long term, though it can spike significantly in high-demand metro areas. A fixed-rate mortgage protects you from rising housing costs, which is one of the key non-financial benefits of homeownership.
What investment return rate should I use?
The investment return rate represents what the renter earns by investing the down payment instead of buying a home. The S&P 500 has returned approximately 7% annually on average after adjusting for inflation over long periods, though individual years vary widely. Using 7% is a reasonable baseline. If you are a conservative investor (bonds/savings), use 3–4%. If you would leave the money in a savings account, use a current high-yield savings rate. A higher investment return rate favors renting.
Should I include property tax and maintenance in my comparison?
Yes, both are significant costs that many rent vs. buy comparisons overlook. The US average effective property tax rate is about 1.1% of home value annually, though it ranges from 0.3% (Hawaii) to over 2% (New Jersey). Annual maintenance costs — repairs, HVAC servicing, appliances, landscaping — typically run 1–2% of home value per year. This calculator uses 1% for maintenance by default. Together, these "hidden" homeownership costs often add $5,000–$15,000 per year on a $400,000 home.
Does the calculator include PMI or mortgage insurance?
This calculator does not separately itemize PMI. If you are putting less than 20% down on a conventional loan, factor in PMI costs separately using our PMI Calculator, then add the annual PMI cost to your analysis. FHA loans have mandatory mortgage insurance that lasts the life of the loan; VA loans have no PMI. For simplicity in the rent vs. buy comparison, we focus on the core costs; your actual monthly payment may be higher if PMI applies.
How does the length of time I plan to stay affect the decision?
The longer you stay, the more favorable buying becomes — because upfront costs (down payment, closing costs, selling costs) are amortized over more years. If you plan to move in fewer than 3–4 years, renting almost always wins financially because you absorb high transaction costs with little time to recoup them through equity. If you plan to stay 7+ years in most US markets, buying typically becomes the better financial outcome. The break-even year this calculator computes is exactly this threshold.
Are there non-financial reasons to buy vs. rent?
Absolutely. Homeownership provides stability — no risk of a landlord not renewing your lease, freedom to renovate, and pets or hobbies that rentals may prohibit. Buying also provides an inflation hedge and a form of forced savings through equity accumulation. On the renting side, flexibility to relocate for career opportunities, no responsibility for major repairs, and lower upfront capital requirements are significant advantages. The financial break-even is one input into the decision, not the whole answer.

Related Calculators

FHA Loan Calculator
Calculate FHA monthly payments with mortgage insurance to see buying costs.
PMI Calculator
Estimate PMI costs if your down payment is under 20%.
VA Loan Calculator
Calculate VA loan payments — no PMI, often 0% down for eligible veterans.
HELOC Payment Calculator
After buying, explore home equity options with a HELOC calculator.

Sources & Methodology