Rent vs Buy Calculator
Updated · By the CalculatorDash editorial team · How we check our maths
Quick answer
Over a 7-year stay, buying a $400,000 home with 20% down at 6.5% costs about $205,000 once you count payments, ownership costs, buying and selling costs, the equity you build and the return your down payment could have earned. Renting at $2,200 a month rising 3% a year costs about $202,000, so in this example renting is slightly cheaper. Staying longer usually tips it towards buying.
How this calculator works
Comparing rent with a mortgage payment is misleading: part of each mortgage payment builds equity, homeowners pay property tax, insurance and repairs, buying and selling a home costs several percent of its price, and the down payment could have been invested instead.
This calculator counts all of that over the years you expect to stay. The net cost of buying is everything you pay out, plus the investment return you give up on your upfront cash, minus the equity you walk away with after selling. Compare it with the total rent over the same period.
The longer you stay, the more buying tends to win, because the one-off buying and selling costs are spread over more years and equity has longer to build.
The formula
- Net cost of buying
- down + 3% buying costs + mortgage payments + ownership costs − (sale price × 94% − loan balance) + forgone return on upfront cash
- Rent paid
- rent × 12 × ((1 + g)^years − 1) ÷ g, where g is the yearly rent increase
- Loan balance
- loan × (1 + r)^k − payment × ((1 + r)^k − 1) ÷ r after k payments
Worked example
With 20% down, the $320,000 loan costs about $2,023 a month. After 7 years the balance is about $289,300 and the home, growing 3% a year, sells for about $492,000, or $462,400 after selling costs. In total you pay out about $331,900 (down payment, buying costs, mortgage payments and ownership costs), walk away with about $173,100 of equity and give up about $46,300 of investment return, so buying nets out at about $205,100. Rent over the same 7 years totals about $202,300, so renting comes out about $2,800 ahead.
Tips
- 01Run the numbers for the shortest time you might realistically stay, not the longest.
- 02Use the rent for a genuinely comparable home, not your current place.
- 03If you rent, actually invest the down payment; otherwise the comparison flatters renting.
Frequently asked questions
Is it better to rent or buy?
It depends mainly on how long you'll stay, local price-to-rent ratios, interest rates and how fast prices and rents rise. Short stays usually favour renting.
What is the price-to-rent ratio?
Home price divided by a year's rent for a similar home. Higher ratios (above roughly 20) tend to favour renting; lower ones favour buying.
Why include the return on the down payment?
Money tied up in a house can't be invested elsewhere. Ignoring that lost return makes buying look cheaper than it is.
Does this include tax benefits?
No. Mortgage interest deductions and tax-free gains on a main home vary by country and situation; they can tilt the result towards buying.