How the Rent or Buy Calculator works
This tool compares two total-cost figures over the number of years you plan to stay in the home: the total cost of buying, netted against what you would recover by selling, and the total cost of renting an equivalent home for the same period. Whichever figure is lower is the cheaper option over that specific holding period — not necessarily forever, since the comparison changes as the years-in-home input changes.
The formula
For a home price P, down payment percentage d, annual mortgage rate r, loan term, monthly rent R, and holding period of y years, the calculator works out:
Mortgage payment: the standard amortization formula PMT = L × i / (1 − (1 + i)−n), where L is the loan amount (P × (1 − d)), i is the monthly rate (r / 12), and n is the total number of monthly payments (loan term × 12).
Total cost of buying = down payment + closing costs (3% of price) + total principal-and-interest paid over y years + property tax, insurance, and maintenance (assumed 1.1% + 0.35% + 1.0% of home value per year) + the opportunity cost of the down payment (what it would have grown to at an assumed 6%/year investment return, minus the down payment itself) − net sale proceeds (home value after 3.5%/year appreciation, minus the remaining mortgage balance, minus 7% selling costs).
Total cost of renting = monthly rent, increased by an assumed 3% each year, summed over the same y years.
The remaining mortgage balance after y years uses the standard amortization balance formula: B = L(1 + i)k − PMT × [((1 + i)k − 1) / i], where k is the number of payments made (capped at the total number of payments, so a fully paid-off mortgage shows a zero balance).
Worked example
Take a $400,000 home with 20% down ($80,000), a 6.5% 30-year mortgage, $2,000 comparable monthly rent, and a 7-year stay. The loan amount is $320,000, giving a mortgage payment of roughly $2,023 per month. After 7 years the remaining balance is about $289,000, and the home — grown at 3.5% per year — is worth about $509,000, so selling nets roughly $184,000 after paying off the loan and 7% selling costs. Adding closing costs, seven years of principal and interest, seven years of tax/insurance/maintenance, and the down payment's opportunity cost, then subtracting that sale proceeds figure, gives a total cost of buying of roughly $196,000. Renting the same home for 7 years, with 3% annual rent increases, totals roughly $184,000 — in this example renting is the slightly cheaper choice, by about $12,000 over the 7 years.
What moves the result most
- Years you plan to stay: the up-front closing costs and the down payment's foregone investment growth are fixed hits that buying pays regardless of the holding period, so short stays favor renting while longer stays give appreciation and principal paydown more time to work in the buyer's favor.
- Mortgage rate: a higher rate raises the monthly payment and slows how quickly principal is paid down, pushing the comparison toward renting; a lower rate does the opposite.
- Home price versus comparable rent: a high purchase price relative to the rent for a similar home (a high price-to-rent ratio) tends to favor renting, since ownership costs scale with price while rent does not.
- Down payment size: a larger down payment lowers monthly principal and interest but ties up more cash whose opportunity cost is charged against buying, so its net effect depends on the assumed investment return relative to the mortgage rate.
What this calculator does not model
Both totals are pre-tax cash comparisons. The calculator does not model the mortgage interest deduction, property tax deduction limits, the capital gains exclusion on selling a primary residence, taxes on investment gains, private mortgage insurance, HOA dues, one-time moving costs, or the intangible value of stability versus flexibility. The appreciation rate, rent growth rate, and investment return rate are fixed planning assumptions built into the formula, not inputs — if your local market runs materially hotter or cooler than these figures, adjust your interpretation accordingly, and treat the output as a starting comparison rather than a final answer.