What does 'opportunity cost of down payment' mean?

When you make a down payment, that money could instead be invested. The opportunity cost is what it would have grown to. A $100,000 down payment at 7% annual return over 10 years grows to roughly $197,000. This calculator includes that cost on the buying side — it's why buying often looks less favorable than a simple mortgage-vs-rent payment comparison.

What home appreciation rate should I use?

US home prices have historically appreciated roughly 3–4% annually in nominal terms, or about 1–2% after inflation. High-cost metros have seen higher appreciation; some markets have been flat or negative. Use 3% as a baseline, 1% as pessimistic, 5% as optimistic for high-demand markets. Avoid using 2020–2022 as a benchmark — that was a pandemic anomaly.

Why does the break-even take 5–8 years?

Two reasons. First, transaction costs: buyer's closing (~3%) plus seller's costs (~6%) total roughly 9% of the home's value that must be recovered through appreciation and equity. Second, early mortgage payments are mostly interest — in year one of a 7% 30-year mortgage, over 80% of each payment is interest, not equity. These costs must be overcome before buying pulls ahead.

Does this include the mortgage interest tax deduction?

No. Its value depends on whether you itemize (only ~10% of filers do since the 2017 tax law changes) and your marginal rate. For most buyers the deduction adds modest benefit. If you itemize, estimate the after-tax cost by multiplying annual mortgage interest by your marginal rate and subtracting from the buying-side costs.

When does renting clearly win?

Renting tends to win financially when you plan to stay fewer than 5–6 years, in markets with low appreciation or high price-to-rent ratios, or when you can invest the down payment at returns exceeding home appreciation. It also wins when buying would require you to stretch your budget dangerously thin.

⚖️Comparisons

Rent vs. Buy Calculator – Which Actually Costs Less?

Is it cheaper to rent or buy?

What This Does

"Renting is throwing money away" is one of the most repeated and most misleading statements in personal finance. Buying also involves throwing money away — on mortgage interest, property taxes, insurance, maintenance, and transaction costs. The real question is which option builds more wealth over the time period you actually plan to stay. This calculator runs both sides of the comparison in full. For buying: P&I, property tax, insurance, maintenance, and the opportunity cost of your down payment (what it could have earned if invested instead). For renting: monthly rent with annual increases, plus the investment returns from deploying your down payment in the market. At the end of your specified time horizon, it factors in home equity built and net proceeds from selling — including seller's closing costs. The result is a true net wealth comparison, not a simplified mortgage-vs-rent payment comparison. The break-even year — when buying starts outperforming renting — is the most useful number this calculator produces. For most US markets, it falls between 5–8 years.

Assumptions

·Closing costs to buy assumed at 3–4% of purchase price; selling costs at 6% (agent commission + fees)
·Home appreciation default of 3%/year (historical US average); enter your local market estimate
·Investment return on down payment (renter's alternative) defaults to 7%/year
·Maintenance costs assumed at 1% of home value annually
·Rent increases assumed at the rate you enter (national average ~3%/year)

How It's Calculated

Buying net cost over N years: = (Total mortgage payments) + (Property tax paid) + (Insurance paid) + (Maintenance paid) + (Opportunity cost of down payment) – (Equity built) – (Net home sale proceeds after seller costs) Renting net cost over N years: = (Total rent paid) – (Investment gains on down payment + monthly savings vs. buying) The calculator compounds both paths month by month and finds the crossover year where buying net cost dips below renting net cost. Before that year, renting wins financially. After it, buying wins.

When Should You Use This?

→Deciding whether to buy now or keep renting — especially if you're unsure how long you'll stay
→Understanding how long you need to stay for buying to break even over renting
→Stress-testing a home purchase against investing the down payment instead
→Comparing different home appreciation rate assumptions for your local market
→Making the financial case (either way) to a partner or family member

Worked Examples

Example 1: 5-year horizon — renting vs. buying $420,000 condo

Inputs: Purchase: $420,000 · Down: 20% ($84,000) · Rate: 7% · Rent alt: $2,100/mo · Tax: 1.2% · Appreciation: 3% · Investment return: 7%

Result: 5-year cost buying: $198,000 net · 5-year cost renting: $165,000 · Renting wins by $33,000

Transaction costs (buying ~$17K, selling ~$25K) dominate over 5 years. The home hasn't appreciated enough to overcome the cost of entry and exit. Renting and investing the down payment clearly wins at this time horizon.

Example 2: 10-year horizon — same scenario

Inputs: Same as above, extended to 10 years

Result: 10-year net buying: $247,000 · 10-year net renting: $258,000 · Buying wins by $11,000

At 10 years, buying has pulled ahead — appreciation has built enough equity to overcome transaction costs and opportunity cost. The break-even was around year 7–8. This is why 'how long you'll stay' is the most important variable in the rent vs. buy decision.

🏠 Rent vs. Buy Calculator

Net Cost Over Time · Break-Even · Rate Sensitivity · Stay Duration Analysis

Results update in real time. Accounts for equity, opportunity cost, appreciation, taxes, maintenance, and closing costs.

🏠 Buying

Home Price

Down Payment

Mortgage Rate

Loan Term

Property Tax Rate

%/yr

Annual Maintenance

% home

🏢 Renting

Monthly Rent

Annual Rent Increase

%/yr

📈 Market Assumptions

Home Appreciation

%/yr

Investment Return

%/yr

Years to Stay

About This Calculator

This rent vs buy calculator runs a full year-by-year simulation from 12 inputs in real time via useEffect. Buy net cost = gross payments − net sale proceeds + down payment opportunity cost. Gross accumulates: down + 3% closing, monthly P&I (standard amortization), property tax, insurance, and 1-n% maintenance (escalating with home value). Sale proceeds = home value × 94% − loan balance. Score 0–100: 50 = tie, above = buy wins, below = rent wins. Tier breakpoints: Strongly Buy (≥70), Lean Buy (≥55), Too Close (≥45), Lean Rent (≥30), Strongly Rent (<30).

Timeline tab: LineChart with two lines — buy net cost (emerald) vs rent total (blue) year by year to max(yearsToStay+5, 15), vertical break-even ReferenceLine, your-stay ReferenceLine. Below: equity breakdown. Stay Duration tab: BarChart of net savings at 6 durations (3/5/7/10/15/20yr), colored by winner (green = buy wins, blue = rent wins), current year highlighted, ReferenceLine at 0, detail table. Rate Sensitivity tab: BarChart at 5 rate scenarios (cur−2% to cur+2%), same coloring, detail table with monthly P&I per rate.

Educational model only. Not financial or real estate advice. Consult a licensed real estate agent and financial advisor.

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Common Mistakes to Avoid

✕Comparing monthly mortgage payment to monthly rent without including taxes, insurance, maintenance, and opportunity cost
✕Using recent years (2020–2022) as a home appreciation benchmark — those were anomalous pandemic-driven gains
✕Ignoring seller's closing costs (~6%) which significantly erode gains on short-term ownership
✕Forgetting that early mortgage payments are mostly interest — equity builds slowly in years 1–5
✕Treating 'building equity' as free — equity built via appreciation is real, but equity built via interest payments means you paid a lot to get there

Frequently Asked Questions