What this calculator does
Renting and buying are usually compared badly, by setting rent against a mortgage payment as though that were the whole story. It is not: ownership carries rates, insurance, maintenance and transaction costs, while renting frees the deposit to be invested elsewhere.
Time is what decides it. Transaction costs are large and are paid at both ends, so a short stay rarely justifies buying. On these defaults renting remains cheaper even at fifteen years, largely because 7 per cent selling costs and 2.5 per cent annual ownership costs consume most of the appreciation.
The formula
The buying side accumulates the deposit, closing costs, all mortgage payments, ownership costs and selling fees, then subtracts the equity left at exit. The renting side accumulates growing rent and subtracts the investment growth earned on the money not tied up in a deposit.
| Term | Meaning |
|---|---|
| Net cost of buying | Everything paid out over the period less the equity recovered on sale. |
| Opportunity cost | What the deposit and closing costs could have earned if invested instead. |
| Transaction costs | Buying and selling fees, which are paid regardless of how long you stay. |
The inputs explained
| Field | What to enter |
|---|---|
| Home price ($) | The purchase price of the home. |
| Down payment (%) | The deposit as a percentage of the price. |
| Mortgage interest rate (%) | The mortgage interest rate. |
| Mortgage term (years) | The mortgage term in years, which sets the payment size. |
| Years you plan to stay | How long you actually plan to stay. This is the single most important input. |
| Comparable monthly rent ($) | Monthly rent on a comparable property. |
| Annual rent growth (%) | Annual rent growth, which compounds over the period. |
| Annual home price appreciation (%) | Annual home price appreciation. Be conservative, since this drives the result heavily. |
| Return if the down payment were invested instead (%) | The return the deposit would earn if invested instead of used on a house. |
| Property tax, insurance & maintenance (% of value per year) | Rates, insurance and maintenance as a percentage of value per year. Around 2 to 3 per cent is realistic. |
| Buying closing costs (% of price) | Purchase costs such as conveyancing and duty, as a percentage of the price. |
| Selling costs at exit (% of sale price) | Agent commission and other selling costs, paid on the sale price at exit. |
When to use it
Deciding whether a short stay justifies buying
Transaction costs dominate over a few years, and the comparison usually favours renting.
Testing your appreciation assumption
Changing the growth rate shows how much of the case for buying rests on it.
Accounting for the deposit properly
Money in a house is money not invested elsewhere, and ignoring that overstates the case for buying.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the length of stay change the comparison?
The same decision over three time horizons.
| Years you stay | Net cost of buying | Net cost of renting |
|---|---|---|
| 3 years | $117,829.96 | $61,080.91 |
| 7 years | $209,478.67 | $147,814.97 |
| 15 years | $367,117.96 | $337,776.41 |
Questions
Why does buying look worse than expected?
Because the comparison includes things usually left out: ownership costs of 2.5 per cent a year, selling costs of 7 per cent, and the return the deposit would have earned invested elsewhere. Those three are what a mortgage-versus-rent comparison ignores.
Which input matters most?
Appreciation and the length of stay, in that order. Both are assumptions about the future, so the honest way to use this is to try a range rather than trusting a single answer.
Does this cover everything?
No. It leaves out tax treatment, which varies by country and can be significant, and it cannot price the security and freedom of owning, which many people reasonably weigh heavily. It is a financial comparison, not a complete one.
Is there a break-even period?
Typically somewhere between five and ten years in most markets, but it depends entirely on local transaction costs, the rent-to-price ratio and appreciation. Varying the years input finds the crossover for your own figures.
For the mortgage payment itself, see the loan payment calculator. For how the invested alternative would grow, see the compound interest calculator.