How This Calculator Works
The rent-versus-buy comparison sums every dollar that flows out of your pocket under each scenario over a five-year horizon, then adjusts for the equity you would walk away with if you sold. Buying costs include upfront closing costs, monthly mortgage principal and interest, property taxes, homeowners insurance, and HOA dues — plus the opportunity cost of the down payment, which is the investment return you forgo by parking cash in a house instead of the market. Renting costs include monthly rent (with annual increases) plus the opportunity cost of the cash you did not spend on a down payment and closing costs, which keeps earning investment returns.
Monthly Mortgage P&I = L × [ r(1+r)n ÷ ((1+r)n − 1) ]
where L = loan amount, r = monthly rate, n = 360 (30-yr)
Buying Net Cost = Closing Costs + Σ(P&I + Tax + Ins + HOA)
+ (Down Pmt + Closing) × [ (1+i)5 − 1 ]
− (Home Value Yr 5 − Loan Balance Yr 5)
Renting Net Cost = Σ Rent × (1+g)t
+ (Down Pmt + Closing) × [ (1+i)5 − 1 ]
The mortgage payment uses the standard amortization formula. Home value in year five equals the purchase price compounded at your assumed annual appreciation rate. Loan balance in year five is the remaining principal after 60 monthly payments, which is heavier in interest early in the schedule. The opportunity cost of the down payment assumes you could have invested it at your chosen market return — commonly 6–8% for a balanced portfolio — and compounds annually. Rent increases at your input growth rate, typically 3–4% nationally.
The break-even year is the point at which cumulative buying costs fall below cumulative renting costs. If that point occurs within five years, buying is favored; if it lands beyond five, renting wins for that horizon. National Association of Realtors data shows the median break-even in the U.S. is roughly 4.5 years, but ranges from under three years in affordable Midwest markets to over ten in San Francisco and Manhattan. Use the calculator as a directional guide, then refine with realistic local rent comps, property tax rates, and insurance quotes before committing to a purchase.
When to Use This Calculator
Use this calculator whenever you are weighing a home purchase against continued renting. The decision hinges on time horizon and local economics, so run the numbers when:
- You are relocating for a job and deciding whether to buy or rent in the new city
- You expect to stay in the same property for fewer than seven years
- Local rent is rising faster than home prices, or vice versa
- You have enough saved for a down payment but question whether tying up the cash is wise
- You are choosing between buying a starter home now or renting and investing the down payment
- Interest rates shift materially — a 1% mortgage rate change swings the math significantly
- You are comparing multiple cities for relocation and want a true cost-of-living comparison
Re-run the analysis if your timeline shortens, since a sudden move within two years almost always favors renting after transaction costs. The calculator assumes a 30-year fixed mortgage; if you are choosing an ARM or 15-year loan, the equity buildup and interest deductions differ materially.
Example Calculation
Consider a $400,000 home with 20% down ($80,000), a 6.5% 30-year fixed mortgage ($320,000 loan), $1,200 annual property taxes at a 0.3% effective rate, $1,400 homeowners insurance, $50 monthly HOA, and 3% closing costs ($12,000). Home prices appreciate at 3.5% per year. The alternative is renting a comparable property at $2,200 per month with 4% annual increases. The opportunity cost rate — what the down payment could earn invested — is 7%.
Buying side. Monthly mortgage P&I on $320,000 at 6.5% for 30 years is $2,022. Over five years you pay roughly $121,300 in mortgage payments, $6,000 in property taxes, $7,000 in insurance, and $3,000 in HOA. Closing costs add $12,000 upfront. Opportunity cost on the $92,000 you kept invested ($80,000 down payment + $12,000 closing) at 7% for five years equals $37,000. After five years, the home is worth $474,800 and the loan balance is about $301,000, leaving $173,800 in equity. Net buying cost over five years: approximately $106,500.
Renting side. Five years of rent starting at $2,200 and rising 4% per year totals roughly $145,400. Opportunity cost on the $92,000 you kept invested at 7% equals $37,000. Net renting cost: approximately $182,400.
Buying wins by roughly $76,000 over five years, with break-even occurring in year three. If the home appreciated only 1% annually instead, renting would win by about $30,000 — illustrating how sensitive the decision is to your appreciation assumption. Always stress-test with appreciation at 0–1% before deciding that buying is clearly superior.