Quick Summary
A guide to the rent vs. buy calculation - what costs to include on each side, how opportunity cost changes the math, and why the breakeven timeline matters.
“My mortgage would be $1,800 and rent is $2,000, so buying is obviously cheaper.”
This comes up constantly, and it sounds reasonable on the surface. But it’s comparing one line item on each side and ignoring a dozen others. The actual rent vs. buy comparison involves costs that don’t appear on any monthly statement - and an opportunity cost that most people never think about.
The Rent vs. Buy Calculator runs the full math with your numbers. No signup needed.
The Costs Nobody Mentions at the Open House
Here’s what the buying side actually looks like for a $350,000 home with 20% down at 6.5%:
| Monthly Cost | Amount |
|---|---|
| Mortgage P&I | $1,770 |
| Property taxes | $365 |
| Homeowner’s insurance | $175 |
| Maintenance (1% of value/year) | $292 |
| Total monthly cost | $2,602 |
And here’s the part that stings: of that $1,770 mortgage payment, about $1,517 goes to interest in year one. Only $253 actually builds equity. The rest vanishes just like rent does.
Compare that to renting at $2,000/month plus $15 for renter’s insurance. The renter is paying $587 less every month. And the $70,000 that would have been a down payment? Sitting in an investment account, growing.
The Number That Changes Everything
That $70,000 down payment is the elephant in the room. Invested at a 7% average annual return, it grows to roughly $98,000 after five years and $138,000 after ten. That growth belongs entirely to the renting side of the ledger.
When mortgage rates are high and home prices are elevated - as they are in many markets - this opportunity cost can keep the math tilted toward renting for years.
So When Does Buying Actually Win?
It depends on time. The longer you stay, the more the equation shifts.
In the example above (assuming 3% annual home appreciation and 3% rent increases):
Years 1-5: Buying costs more. The equity built hasn’t caught up to the higher monthly costs plus the down payment’s lost investment returns.
Around year 7-8: The breakeven zone. Equity accumulation and home appreciation start to match or overtake the renter’s investment growth.
Year 10 and beyond: Buying usually pulls ahead, sometimes significantly. Rent keeps climbing. The mortgage payment stays fixed. Equity builds faster as more of each payment goes to principal.
But “usually” is doing a lot of work in that sentence. The exact crossover depends on your local market, and that’s why plugging in your own numbers matters more than any national average.
The Variables With Outsized Impact
Not all inputs carry equal weight. A few swing the outcome dramatically:
Interest rates are the biggest lever. At 4%, buying becomes favorable years sooner. At 7%, renting looks better for much longer. A single percentage point can shift the breakeven by two or three years.
How long you’ll stay might matter even more than rates. Transaction costs on buying and selling - closing costs, agent commissions, transfer taxes - typically eat 8-10% of the home’s value. Stay less than three years and you’re almost certainly losing money on the buy. Five to seven years is where things start to get interesting.
Rent growth is worth thinking about honestly. If rents climb 5% a year instead of 3%, buying looks better sooner. In rent-controlled areas, the calculus flips. Stable rent is a powerful counterweight to the ownership premium.
Home appreciation is the wildcard everyone wants to predict and nobody can. National averages run 3-4% historically, but individual markets range from flat to 10%+ in any given stretch. Building a case for buying that depends on above-average appreciation is adding risk, not reducing it.
What the Calculator Can’t Tell You
The math is only one dimension. Owning a home means freedom to renovate, stability for a family, and a kind of forced savings through equity building. It also means you’re on the hook when the furnace dies at midnight in January.
Renting means flexibility. It means calling someone else when the plumbing breaks. It means lower financial exposure if the local market takes a dip. It also means your landlord can raise the rent or sell the building.
Neither option is universally better. The financial comparison just shows which one costs less under a set of assumptions - it doesn’t say which one fits your life.
Making the Comparison Honest
For results worth trusting:
Use real local numbers. National medians are interesting for headlines and useless for decisions. What does a comparable home actually cost in your neighborhood? What would you actually pay in rent?
Include everything. Property taxes, maintenance, HOA fees, renter’s insurance. Skipping line items is how people convince themselves of whatever they already want to believe.
Test your assumptions. What if you move in five years instead of ten? What if rates drop and you refinance? What if they don’t?
Be honest about the down payment. If you wouldn’t actually invest the $70,000 - if it would sit in a savings account earning 4% - the opportunity cost shrinks and buying looks better sooner.
The Financial Planning Template helps model how a home purchase fits into the bigger financial picture, and the Annual Budget Template shows how housing costs ripple through year-round cash flow.
More on Housing & Mortgages
- Home Affordability Calculator: How Much House Can You Afford? - Calculate a comfortable purchase price based on income, debts, and down payment
- Down Payment Calculator: How Much to Save for a Home - How much to target, the tradeoffs of different percentages, and building a savings plan
- Rent vs. Sell Calculator: What to Do With Your Property - Compare renting out vs. selling a property you no longer live in
- Mortgage Payoff Calculator: Extra Payments Impact - How extra payments shorten your loan term and save on interest