How the calculator works
The calculator follows two people from the same starting point:
- The buyer pays the down payment and closing costs, then the mortgage, property tax, insurance and repairs. When they sell, they keep the home’s value minus the loan left and the costs of selling.
- The renter invests the down payment and closing costs instead, and pays rent.
Each month, whoever pays less invests the difference, so both spend the same. The result is who has more after the years you choose.
Example
A $400,000 home with $80,000 down, at 7.24% over 30 years, against rent of $2,200 a month. Home prices and rent rise 3% a year, and money not spent on housing earns 5%:
| Amount | |
|---|---|
| Mortgage payment | $2,181 a month |
| Owning, first month, with tax, insurance and upkeep | $3,031 a month |
| Closing costs to buy | $12,000 |
| Ahead after 7 years | Renting by $31,895 |
| Buying pays off after | 15 years |
The longer you stay, the better buying looks
The same example, over different lengths of stay:
| Stay | Buyer has | Renter has | Ahead |
|---|---|---|---|
| 3 years | $100,889 | $137,491 | Renting by $36,602 |
| 5 years | $133,906 | $169,058 | Renting by $35,152 |
| 7 years | $169,689 | $201,583 | Renting by $31,895 |
| 10 years | $229,182 | $252,076 | Renting by $22,894 |
| 15 years | $346,752 | $340,259 | Buying by $6,493 |
| 20 years | $497,121 | $436,065 | Buying by $61,056 |
| 30 years | $1,005,688 | $710,305 | Buying by $295,384 |
Buying starts behind because of the costs to buy, and the agent’s fee and other costs when you sell. Each year the loan shrinks and the home’s value grows, so the gap closes.
What changes the answer
Changing one thing at a time from the example:
| If | Ahead after 7 years | Buying pays off after |
|---|---|---|
| The example | Renting by $31,895 | 15 years |
| Home prices rise 1% a year | Renting by $86,313 | 28 years |
| Home prices rise 5% a year | Buying by $29,499 | 5 years |
| Mortgage rate 6.24% | Renting by $5,967 | 8 years |
| Mortgage rate 8.24% | Renting by $58,103 | 24 years |
| Investments earn 3% a year | Renting by $10,436 | 9 years |
| Investments earn 7% a year | Renting by $55,725 | Not within 30 years |
| Rent of $1,800 | Renting by $75,395 | Not within 30 years |
| Rent of $2,600 | Buying by $11,606 | 6 years |
What matters most
- How long you stay: closing costs and agent fees take years to earn back.
- Your mortgage rate: at higher rates, more of each payment is interest you don’t get back.
- Home price growth: small changes make a big difference over time.
- Investing the difference: renting only comes out ahead if the money you don’t spend on owning is really invested. If you’d spend it, buying makes you save.
Costs of owning to include
- Property tax and homeowners insurance, which your lender may collect with the mortgage payment.
- Upkeep and repairs: 1% of the home’s value a year is a common rule of thumb.
- HOA fees, if the home has them: enter them under More options.
- PMI with less than 20% down, until you reach 20% equity.
See what you could borrow with the home affordability calculator, or read is renting dead money?