Rent vs Buy Calculator

How this rent vs buy calculator finds your break-even year

This rent vs buy calculator runs a month-by-month simulation to find the first year your net worth as a buyer exceeds the net worth you would have had as a renter. Below this year, selling your home and walking away would leave you with less money than the renter who invested the down payment and kept the cash flexibility. At and beyond it, the equity you've built and the appreciation you've captured outrun the renter's portfolio.

The math is a month-by-month simulation. For the buy path, the calculator tracks home value, loan balance, amortized principal and interest, property tax, homeowners insurance, PMI when your loan-to-value exceeds 80%, HOA, and maintenance. The buyer's net worth at any point is the current home value minus selling costs minus remaining loan balance — what you'd actually pocket if you sold today.

For the rent path, the calculator invests the money the buyer spent upfront (down payment plus closing costs) at your chosen investment return rate. Each month, if buying costs more than renting, that difference also gets added to the renter's portfolio. This is the opportunity cost buyers often forget: every dollar locked into home equity is a dollar not compounding at stock-market returns.

The break-even year is the first year where buy net worth catches up to and overtakes rent net worth. If your horizon is too short or your assumptions too friendly to renting (high investment return, low rent, slow home appreciation), buy may never catch up — the calculator flags this explicitly.

The rent threshold: a more useful framing

Break-even year answers "should I buy?" but the sharper question is often "at what rent level does buying start to make sense?" The rent threshold reframes the comparison around the number you actually see every month: your rent.

The calculator finds this threshold by holding every other assumption constant and binary-searching for the starting rent at which the renter's final portfolio exactly equals the buyer's final equity. Above that threshold, buying wins. Below it, renting wins — even if only slightly.

The practical value: when you get a rent increase notice, you can plug your new rent into the tool and instantly see whether you've crossed the threshold. Housing decisions don't have to wait for big life moments; small rent hikes over several years can flip the math quietly.

The opportunity cost most calculators miss

Popular rent vs buy calculators often compare "total rent paid" to "total mortgage paid" and declare buying the winner because you build equity. This framing skips the most important variable: what your down payment could have done elsewhere.

Consider a 20% down payment on a $400,000 home — that's $80,000 in cash. If that money stayed in a diversified index fund instead, at a long-run 7% nominal return, it would grow to roughly $157,000 in 10 years, $314,000 in 20 years, and $609,000 in 30 years. That's not a small footnote; it's the whole decision.

This calculator accounts for that opportunity cost in two ways. First, the renter's portfolio starts with the full upfront sum the buyer spent (down payment + closing costs). Second, in months where buying costs more than renting, the cash difference also gets invested by the renter. The result is a realistic comparison of two financial paths, not just two cost totals.

Eight hidden costs of buying

When calculating your real monthly cost of ownership, don't stop at the mortgage. Eight categories show up in the buy path:

1. Closing costs at purchase — typically 2% to 5% of home price for loan origination, title insurance, appraisal, and inspections. The calculator defaults to 3%.
2. Property tax — the national effective average is roughly 1% of home value per year, but varies from under 0.5% (Hawaii, Alabama) to over 2% (New Jersey, Illinois, New Hampshire).
3. Homeowners insurance — national average around 1% of home value annually in 2026, after sharp increases driven by climate-related claims. High-risk states (California, Florida, Texas) often run 1.5% or more.
4. PMI — required by lenders when your down payment is under 20%. Typically 0.46% to 1.5% of the loan balance per year. Drops off automatically at 78% loan-to-value under the Homeowners Protection Act.
5. HOA dues — condos and planned communities often charge $200 to $600 per month. Usually zero for standalone houses.
6. Maintenance — the long-standing "1% rule" estimates annual maintenance at 1% of home value. Older homes and harsher climates often run higher.
7. Major repairs — roof replacement, HVAC systems, and water heaters represent irregular but predictable expenses. Most financial planners bake these into the 1% maintenance figure.
8. Selling costs — realtor commissions (now typically 2.4% for seller's agent, with buyer-side commission often negotiated separately) plus closing fees and transfer taxes typically total 6% to 8% of the sale price.

Together these can easily equal or exceed your principal-and-interest payment, especially in the early years when amortization sends most of each payment to interest.

Default assumptions and sources

The calculator ships with these defaults, pulled from US market data as of April 2026:

• Mortgage rate 6.30% — Freddie Mac Primary Mortgage Market Survey, week of April 16, 2026.
• Home appreciation 4.0%/yr — FHFA House Price Index long-term average. Recent 2026 data runs softer (1% to 2%); 4% reflects multi-decade norms.
• Rent growth 3.0%/yr — Bureau of Labor Statistics CPI Rent of Primary Residence, March 2026 year-over-year.
• Investment return 7.0%/yr — conservative planner-default for diversified equity returns, net of fees and implementation drag. Historical S&P 500 nominal return has been closer to 10% but not all investors capture it.
• Property tax 1.0%/yr — Tax Foundation 2026 national effective rate. Vary by state.
• Home insurance 1.0%/yr — raised from the traditional 0.85% estimate to reflect 2025's 12% spike and 4-8% projected 2026 increases.
• Maintenance 1.0%/yr — Fannie Mae home maintenance guidance.
• Closing costs: 3% buy, 7% sell — buyer closing typical 2-5%; seller closing 6-8% after the 2024 NAR commission settlement changed agent pricing.
• PMI 0.75% — midpoint of the typical 0.46%-1.5% range.
• Renters insurance $15/mo — national average, usually $10-$20.

Every assumption is adjustable under "Advanced assumptions" on the input panel. If you know your local property tax rate is 2.1%, change it. If you're bullish on long-term equity returns, raise the investment return to 9%. The whole point of the tool is to replace national averages with your specific situation.

Why the mortgage interest tax deduction isn't modeled

For 2026, the standard deduction is $16,100 for single filers and $32,200 for married filing jointly. To benefit from itemizing mortgage interest, your total itemized deductions — mortgage interest plus SALT (capped at $40,400 in 2026 under OBBBA) plus charitable gifts — must exceed those standard amounts. For most American homeowners, especially in low-property-tax states with moderate mortgages, the standard deduction wins and the mortgage interest write-off provides zero marginal benefit.

Modeling this accurately would require your filing status, adjusted gross income, state of residence, and other itemized amounts — too many inputs to ask of someone just trying to think through rent versus buy. If you expect to itemize because you live in a high-tax state with a large mortgage, a rough shortcut is to reduce your effective mortgage rate by your marginal tax bracket (22% or 24% for most middle-income households) times the interest portion of your payment. In the first year of a 30-year mortgage, that's close to the full rate; by year 15 it's only half.

Note: OBBBA also restored PMI as a deductible expense starting tax year 2026 (with AGI phaseout). For buyers carrying PMI this is a real, if modest, benefit — but the same itemization threshold applies.

Limits of this calculator

No calculator can capture everything that matters. This tool does a careful job with cash flows, opportunity cost, and a month-by-month amortization simulation, but it cannot model:

• Non-financial returns — stability, forced savings discipline, pride of ownership, control over your space. Worth real money to some households.
• Life disruption — a forced job move in year 3 converts an otherwise fine purchase into a bad one. The calculator assumes you hit your chosen horizon cleanly.
• Rental quality differences — if your rent option is smaller or farther from work than your buy option, the comparison isn't strictly apples-to-apples.
• Tax optimization — beyond the mortgage-interest simplification above, capital gains exclusions on primary residences and 1031 exchanges on investment property are not modeled.
• Leverage benefits in rising markets — buying with 20% down means you capture 100% of appreciation on a $400K asset with $80K of your own money. The calculator reflects this through the equity term, but if home prices surge unexpectedly, buyers can gain quickly.

Treat the output as one data point in your decision, not the final word. The goal is to be honest about the math so you can overlay your own situation and values.