How to Use the Rent vs Buy Calculator
This free calculator estimates which path leaves you financially better off after a chosen time horizon (commonly 5, 10 or 30 years). It models mortgage amortisation, property taxes, insurance, maintenance, home appreciation, rent growth, inflation, tax deductions on mortgage interest and property tax, and the opportunity cost of the capital tied up in a down payment and higher monthly costs.
Step-by-Step Guide
1. Enter Purchase & Mortgage Details
- Currency: Choose your preferred currency.
- Home Purchase Price: The expected purchase price of the property.
- Down Payment (%): Percentage of the price paid up-front.
- Loan Term & Mortgage Interest Rate: Length of the mortgage and the annual interest rate.
- Closing / Buying Costs: Typical transaction costs as a percentage of purchase price.
2. Set Ownership Costs & Growth Assumptions
- Property Tax Rate: Annual tax as a percentage of current home value (scales with appreciation).
- Home Insurance, Maintenance, HOA: Ongoing ownership costs. Fixed-dollar amounts grow with the inflation rate you enter.
- Home Appreciation Rate: Expected annual increase in property value.
- Selling Costs: Agent fees and related costs applied when the model assumes you sell at the end of the horizon.
- Marginal Tax Rate: Used to calculate the cash benefit of deducting mortgage interest and property tax. Set to 0 if deductions do not apply in your jurisdiction or you do not itemise.
3. Enter Rent-Side Figures
- Monthly Rent & Annual Rent Increase: Starting rent and how fast it is expected to rise.
- Renter’s Insurance: Annual cost (inflates over time).
4. Choose Comparison Settings
- Analysis Horizon: Number of years to project (try 5, 10 and 30).
- Expected Investment Return: Rate at which the down-payment capital and any monthly cash-flow differences are assumed to grow if you rent instead of buy (or vice-versa).
- Expected Inflation Rate: Used to grow fixed-dollar costs and to express final net worth in today’s purchasing power.
5. Interpret the Results
The model tracks two parallel scenarios that start with the same liquid capital:
- Buy: Down payment and closing costs are paid immediately. Monthly net ownership costs (mortgage + tax + insurance + maintenance + HOA − tax savings) are paid from the investment portfolio. The home appreciates and the mortgage amortises. At the horizon the model assumes a sale, deducts selling costs and remaining loan balance, and adds the net proceeds to the portfolio.
- Rent: The same initial capital stays invested. Monthly rent + renter’s insurance are paid from the portfolio. The portfolio compounds at the investment return rate.
Key outputs:
- Net Worth if Buy / Rent: Final wealth in each scenario (nominal).
- Advantage: Difference in final net worth.
- Today’s $ figures: The same net worths deflated by cumulative inflation so you can compare purchasing power.
- Total Tax Savings: Cumulative benefit from deducting mortgage interest and property tax.
- Chart & table: Year-by-year evolution of home value, loan balance, equity and net worth under both paths.
Common Scenarios & Examples
Scenario: 30-year horizon, typical suburban purchase
Goal: See whether buying a $400k home with 20% down beats continued renting when both inflation and investment returns are considered.
- Leave the default inputs (or set your local numbers).
- Horizon = 30 years, investment return ≈ 7%, inflation ≈ 2.5%.
- Observe the Advantage box, the chart of net-worth paths, and the final row of the table.
Typical outcome pattern:
In many markets the buy path pulls ahead after 7–12 years once equity and appreciation compound, but high rent growth or very high investment returns can keep renting competitive longer.
Scenario: Short 5–10 year horizon
Goal: Test whether transaction costs and early mortgage interest make buying unattractive if you may move soon.
- Set Analysis Horizon to 5 or 10.
- Keep realistic closing + selling costs (2.5% + 6%).
- Watch how the advantage often favours renting on short horizons because of transaction friction and limited time for equity to build.
Disclaimer & Limitations
Not Professional Advice: This calculator is an educational estimation tool only. It does not constitute financial, tax or legal advice. Actual outcomes depend on local markets, exact tax rules, credit availability, maintenance surprises, and personal circumstances. Consult a qualified adviser.
Tax deductions: The model applies a simple marginal rate to mortgage interest and property tax. Real-world rules vary widely (itemising vs standard deduction, SALT caps in the US, limited or no mortgage interest relief in many other countries, council tax treatment in the UK, etc.). Set the tax rate to 0 if deductions do not apply to you.
Assumptions: Constant rates, regular payments, no extra principal payments, no refinance, no major capital improvements, and that the investment portfolio can be drawn upon for housing costs. Inflation is applied to fixed-dollar costs; percentage-based costs scale with home value. Selling costs are applied only at the final horizon year.
Estimation purposes only: Markets are volatile. Past appreciation or rent growth is not a guarantee of future results.