Free and instant — plug in your own numbers.
Buying beats renting only if you stay long enough for appreciation and principal paydown to outrun the costs you never get back: mortgage interest, property tax, insurance, maintenance, the cost of buying and selling, and the growth your down payment would have earned if you had invested it instead. Comparing a mortgage payment with a rent check leaves most of those out.
In the illustrative example below, a $380,000 home against $2,200 a month in rent, renting comes out ahead for the first five years. The two are roughly even in year 6, and buying is ahead by $8,389 after 7 years and $38,358 after 10. Change one assumption and that break-even year moves, which is why you should run your own numbers in the rent vs buy calculator.
Every cost on both sides
If you buy
- Down payment. Not a cost in itself, since it becomes equity, but that cash can no longer earn a return elsewhere.
- Closing costs when you buy: lender fees, appraisal, title and other charges. See closing costs explained.
- Mortgage interest. Most of your early payments are interest; mortgage amortization shows why.
- Property tax, usually a percentage of the home's assessed value.
- Homeowners insurance.
- Maintenance and repairs, from repainting to a new roof.
- HOA or condo fees, if the property has them.
- Mortgage insurance if you put down less than 20%; see how to get rid of PMI.
- Selling costs when you leave: agent fees, closing costs on the sale and any repairs needed to sell.
- Opportunity cost: the investment growth you give up on the down payment, the closing costs and any extra monthly cost of owning.
What comes back to you: the principal you repaid and any rise in the home's value, both collected when you sell.
If you rent
- Rent, which usually rises over time.
- Renters insurance.
- Moving costs and deposits. Deposits are normally refundable, so they are left out below.
What renters keep: flexibility, and cash they can invest. That second point only counts if the renter actually invests it.
The example and its assumptions
Every figure here is illustrative. Swap in local prices, rates and taxes before you rely on the result.
| Assumption | Value |
|---|---|
| Home price | $380,000 |
| Down payment (20%) | $76,000 |
| Closing costs to buy (3%) | $11,400 |
| Mortgage | $304,000, 30-year fixed at 6.25% |
| Property tax | 1.1% of home value a year |
| Homeowners insurance | $1,800 a year |
| Maintenance | 1% of home value a year |
| Home value growth | 3% a year |
| Selling costs | 6% of the sale price |
| Comparable rent | $2,200 a month |
| Renters insurance | $240 a year |
| Rent, insurance and upkeep growth | 3% a year |
| Investment return on spare cash | 5% a year |
The comparison is fair because both people spend the same amount each month. The renter invests the $87,400 that the buyer spent on the down payment and closing costs. Each month, the renter also invests the gap between the owner's costs and the rent.
Year one: what each person pays
| Monthly cost, year 1 | Buyer | Renter |
|---|---|---|
| Mortgage principal and interest | $1,871.78 | |
| Property tax | $348.33 | |
| Homeowners insurance | $150.00 | |
| Maintenance | $316.67 | |
| Rent | $2,200.00 | |
| Renters insurance | $20.00 | |
| Total | $2,686.78 | $2,220.00 |
Owning costs $466.78 a month more in year 1, and the renter invests that difference. Not all of the mortgage payment is a cost, though. In month 1, $1,583.33 is interest and only $288.45 repays principal, which you get back as equity. The gap narrows every year because the mortgage payment is fixed while rent rises: by year 7 it is down to $194.14 a month.
Seven years of costs, side by side
Here is the full tally if you sell after 7 years. "Unrecoverable" means money you don't get back.
| Buyer, over 7 years | Amount |
|---|---|
| Closing costs to buy | $11,400 |
| Mortgage interest | $126,932 |
| Property tax | $32,029 |
| Homeowners insurance | $13,792 |
| Maintenance | $29,117 |
| Selling costs | $28,041 |
| Less: rise in home value | −$87,352 |
| Opportunity cost (lost investment growth) | $41,779 |
| Net unrecoverable cost | $195,739 |
| Renter, over 7 years | Amount |
|---|---|
| Rent | $202,289 |
| Renters insurance | $1,839 |
| Net unrecoverable cost | $204,128 |
Figures are rounded to the nearest dollar, so a total can differ from the sum of its lines by $1.
The buyer's unrecoverable costs are $8,389 lower. You get the same answer by comparing what each person has at the end. The home sells for $467,352; after $28,041 of selling costs and the $273,702 left on the mortgage, the buyer walks away with $165,609. The renter's investments are worth $157,220. The difference is $8,389.
Key idea Principal repayment isn't a cost, and rent isn't "throwing money away". The real question is whose unrecoverable costs are lower over the time you plan to stay.
Who comes out ahead, and when
| After year | Buyer's net worth from the home | Renter's investments | Buyer ahead by |
|---|---|---|---|
| 1 | $67,478 | $97,499 | −$30,021 |
| 3 | $97,711 | $117,643 | −$19,932 |
| 5 | $130,347 | $137,602 | −$7,255 |
| 6 | $147,635 | $147,464 | $171 |
| 7 | $165,609 | $157,220 | $8,389 |
| 10 | $223,964 | $185,606 | $38,358 |
Buying starts deep in the hole because the closing costs are spent on day one and the selling costs would hit the moment you leave. It takes years of appreciation and principal repayment to climb out.
How sensitive the answer is
The break-even year in this example is year 6. Changing one assumption at a time moves it:
| Change from the base case | Buying pulls ahead in year |
|---|---|
| None (base case) | 6 |
| Rent $2,000 instead of $2,200 | 10 |
| Rent $2,400 instead of $2,200 | 5 |
| Home value grows 2% a year | 11 |
| Home value grows 4% a year | 4 |
| Investments earn 4% a year | 6 |
| Investments earn 7% a year | 10 |
| Mortgage rate 5.5% | 5 |
| Mortgage rate 7% | 9 |
Two lessons stand out. First, the ratio of price to rent matters: here the home costs 14.39 times a year's rent, and the higher that ratio, the longer buying takes to pay off. Second, appreciation is the most powerful assumption and the hardest to predict, so test a low value as well as a hopeful one.
What this model leaves out
- Taxes. The model ignores income tax. In the US, mortgage interest is deductible only if you itemize, and a gain on selling your main home can be partly or fully excluded from tax if you meet the ownership and use rules; check the details at irs.gov. The renter's investment gains may be taxed. In the UK, Canada and Australia, a main home is also generally exempt from capital gains tax, but rules on deductions differ.
- Lumpy repairs. Maintenance arrives as a $9,000 roof, not a steady 1% a year. Keep cash for it.
- Behavior. If the renter spends the monthly difference instead of investing it, buying wins sooner. A mortgage is a form of forced saving.
- A smaller down payment. With less than 20% down you would also pay mortgage insurance, which pushes the break-even year later.
When the numbers aren't the whole answer
A break-even year assumes you can stay put and that nothing forces a sale. A few other factors can outweigh a modest gap in either direction:
- Flexibility. Renting lets you move for a job or a change in family plans with a month or two of notice. Selling a home in a hurry can mean accepting a lower price, on top of the selling costs.
- Concentration. A buyer with 20% down often has most of their net worth in one property in one town. A renter's investments can be spread across many holdings.
- Stability and control. Owners choose their own renovations and can't be asked to leave when a lease ends. A fixed-rate mortgage payment never rises, although property tax, insurance and upkeep usually do.
- Access to cash. Home equity is hard to reach without selling or borrowing against it, so keep a separate emergency fund whether you rent or buy.
A quick checklist
- Estimate how long you will stay. If you might move within a few years, renting usually wins on cost alone.
- Get real local numbers: the property tax bill, an insurance quote, HOA fees and the rent on a truly comparable home.
- Ask the lender for the rate, APR and a full estimate of closing costs. In the US, you receive these on a standard Loan Estimate form after you apply.
- Check what you can borrow comfortably with the home affordability calculator, and see the payment for different terms in the mortgage calculator. How much house can I afford covers the lender rules.
- Test three scenarios for appreciation and investment returns (low, middle, high) in the rent vs buy calculator and see whether the answer changes.
Frequently asked questions
Is renting throwing money away?
No. Rent buys housing, just as mortgage interest, property tax and maintenance do. In the example, the buyer's unrecoverable costs exceed the renter's for the first five years.
How long do you need to stay for buying to pay off?
It depends on your local prices, rents and rates. With the assumptions above it takes about six years, but the sensitivity table shows anything from 4 to 11 years.
Should I count the down payment as a cost?
Not the down payment itself, because you get it back as equity when you sell, minus any loss in value. Count what it could have earned elsewhere, the opportunity cost, which in this example was the buyer's second-largest cost after interest.
This article is for general education and is not financial advice. Rules, rates and products vary by lender and country. See our disclaimer.
