Rent vs. Buy Calculator Methodology

The calculator compares an estimated buyer ending position with an estimated renter ending position over the stay length you enter. The buyer side includes estimated home equity after selling costs plus any invested monthly savings. The renter side includes invested upfront cash plus any invested monthly savings.

Inputs include rent, rent growth, renter's insurance, home price, down payment, mortgage rate, loan term, closing costs, selling costs, property tax, insurance, HOA, maintenance, PMI, home appreciation, and investment return assumptions.

Principal equals home price minus down payment. Monthly rate equals annual mortgage rate divided by 100 and then by 12. Number of payments equals loan term in years times 12.

payment = principal * (monthlyRate * (1 + monthlyRate)^payments) / ((1 + monthlyRate)^payments - 1)

If the mortgage rate is 0%, the payment is principal divided by the number of payments.

Rent uses annual step increases. Each year, monthly rent is multiplied by the rent growth assumption. Renter's insurance is added each month.

Owner monthly cost includes mortgage principal and interest, property tax, homeowners insurance, HOA dues, estimated maintenance, and PMI if the down payment is below 20%. Property tax and maintenance are based on the estimated home value in each month.

Renting side invests the upfront cash that would have gone toward down payment and closing costs. If renting is cheaper month to month, the renter invests the monthly difference. If owning is cheaper month to month, the buyer invests the monthly difference. Investment balances grow using the investment return assumption.

The simulation runs month by month. Breakeven is the first month when estimated buyer wealth is greater than or equal to estimated renter wealth. If that never happens during the modeled period, the calculator says buying does not break even within the modeled period.

The MVP does not include tax deductions, local market conditions, transaction timing, unusual repairs, remodeling, inflation beyond the assumptions entered, changing household needs, moving costs, lifestyle preferences, or professional advice.

These calculators are for educational purposes only and are not financial, tax, legal, insurance, investment, real estate, employment, medical, childcare, vehicle-buying, or professional advice.

Major housing decisions can involve financial, tax, legal, mortgage, real estate, and personal considerations. Consider speaking with qualified professionals before making a major decision.