How This Calculator Works
This calculator runs a year-by-year simulation of two parallel financial paths: buying a home with a mortgage, or renting and investing the difference. It tracks every dollar in both scenarios to determine which builds more net worth over your chosen time horizon.
The buying path accounts for mortgage payments (split into principal and interest), property taxes, insurance, maintenance, HOA fees, closing costs at purchase, and selling costs when you eventually move. Home equity grows through appreciation and mortgage paydown.
The renting path invests the money you would have spent on a down payment and closing costs into a diversified portfolio. If monthly renting is cheaper than owning, those savings are also invested each month. The portfolio compounds at your specified investment return rate.
The True Cost of Buying a Home
Many first-time buyers focus only on the mortgage payment, but ownership involves several recurring costs that are easy to overlook:
- Property taxes — An ongoing cost that rises with your home's assessed value. In some areas this alone is 2%+ of the home's value per year.
- Maintenance and repairs — The "1% rule" suggests budgeting 1% of the home's value annually. Roofs, HVAC systems, plumbing, and appliances all eventually need replacement.
- Transaction costs — Buying (2–5%) and selling (5–6%) costs are significant. For a short holding period, these can wipe out any equity gains.
- Opportunity cost — Your down payment could be invested in the stock market. Over 10+ years, the difference in returns can be substantial.
- Mortgage interest — On a 30-year mortgage, you may pay more in interest than the original loan amount.
The True Cost of Renting
Renting is often dismissed as "throwing money away," but that oversimplifies the picture:
- No equity buildup — Rent payments don't build ownership. However, the money saved vs. buying can be invested for potentially higher returns.
- Rent increases — Rents typically rise 2–5% per year. Over a long horizon, this erodes the cost advantage of renting.
- Flexibility — Renters can relocate easily for career opportunities, which has its own financial value.
- Lower upfront cost — No down payment or closing costs means more capital available for investment immediately.
When Buying Usually Wins
Long time horizon (7+ years), low interest rates, high-appreciation markets, stable life situation, and when the monthly cost of owning is close to renting.
When Renting Usually Wins
Short time horizon (under 5 years), high interest rates, expensive markets with low rent-to-price ratios, job mobility needs, or when investment returns significantly exceed home appreciation.
The 5% Rule Explained
Popularized by Ben Felix of PWL Capital, the 5% rule is a quick way to compare renting and buying without a full calculator:
- Take the home's value and multiply by 5%
- Divide by 12 to get a monthly breakeven rent
- If you can rent a comparable home for less than this amount, renting is likely the better financial choice
The 5% breaks down into roughly: 1% property tax + 1% maintenance + 3% cost of capital (the opportunity cost of having your equity in a house instead of invested). In high-tax areas, or when interest rates are above 5%, the breakeven percentage may be higher.
Important Caveats
This calculator does not include country-specific tax deductions (like the US mortgage interest deduction), forced savings psychology, or the non-financial benefits of homeownership (stability, customization, community). These factors matter but are difficult to quantify universally.
Frequently Asked Questions
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