Rent vs Buy
Compare financial impact of renting versus buying a home. Factor in mortgage, taxes, maintenance & opportunity costs. Make the smarter housing decision.
Renting Scenario
Buying Scenario
About Rent vs Buy
Free Online Tool
Rent vs Buy Comparison
Enter your rent terms and buying scenario — monthly rent, annual increase, home price, down payment, mortgage rate, and appreciation — to see the true 5, 10, and 20-year financial outcome of each path and which builds more wealth over your time horizon.
How to Use This Tool (30 Seconds)
- 1Enter Monthly Rent and Annual Increase: Input your current monthly rent in dollars and the annual percentage by which it increases. Use your lease renewal history or local market average — typically 3–5% annually in most US cities. This compound increase significantly impacts the long-term renting cost.
- 2Enter Home Price and Down Payment: Input the purchase price of the home you are considering and the down payment amount. The difference becomes your mortgage principal. Down payments below 20% of home price typically require private mortgage insurance (PMI) — the tool accounts for this in the monthly payment calculation.
- 3Enter Mortgage Rate and Appreciation: Input your expected mortgage interest rate — check current 30-year fixed rates from your bank or Freddie Mac's weekly survey. Enter the annual home appreciation percentage — the historical US average is 3–4% annually, though local markets vary significantly.
- 4View the Wealth Comparison: The tool calculates total cumulative cost, equity built, and net wealth position for both renting and buying at 5, 10, and 20-year horizons — revealing the exact breakeven point where buying becomes financially superior to renting.
The Formulas Behind Rent vs Buy
The comparison uses two parallel financial models. The renting model projects escalating cumulative rent cost. The buying model uses the standard mortgage amortization formula plus home appreciation to project equity and net position:
// Monthly mortgage payment (fixed rate amortization)
principal = homePrice − downPayment
monthlyRate = mortgageRate (%) ÷ 100 ÷ 12
n = 360 (30-year mortgage)
monthlyPayment = principal × (monthlyRate × (1+monthlyRate)^n) ÷ ((1+monthlyRate)^n − 1)
// Cumulative rent cost with annual increase
rentYear1 = monthlyRent × 12
rentYearN = rentYear1 × (1 + annualIncrease%)^(N−1)
totalRentCost = Σ rentYearN for N = 1 to duration
// Home value at year N
homeValueN = homePrice × (1 + appreciation%)^N
// Buyer net equity at year N
equityN = homeValueN − remainingMortgageBalance
buyerNetPosition = equityN − totalBuyingCosts
The breakeven point — when buying's net wealth position exceeds renting's — is typically 5–8 years in most US markets at current rates. Before that point, renting is often financially superior due to transaction costs, mortgage interest front-loading, and the opportunity cost of the down payment. After the breakeven, home equity accumulation and rent escalation reverse the advantage decisively in favor of buying.
Key Input Benchmarks — Current Market Reference
| Input | Conservative | Typical | Optimistic | Source |
|---|---|---|---|---|
| Annual Rent Increase | 2% | 3–4% | 6–8% | BLS Rent CPI |
| Home Appreciation | 2% | 3–4% | 6–7% | FHFA House Price Index |
| 30-Year Mortgage Rate | 5.5% | 6.5–7% | High — use current rate | Freddie Mac Weekly Survey |
| Down Payment | 3.5% (FHA min) | 10–20% | 20%+ (avoids PMI) | HUD / Fannie Mae |
| Buying Transaction Costs | 2–3% of price | 3–5% of price | Up to 6% | NAR Closing Cost Data |
Always use current mortgage rates from your lender — rates change weekly. The Freddie Mac Primary Mortgage Market Survey publishes the national average 30-year fixed rate every Thursday at freddiemac.com.
⚡ Pro Tip
The single variable that most changes rent vs buy outcomes is how long you stay — not the mortgage rate or home price. Buying and selling within 3 years almost always loses money after transaction costs (3–6% to buy, 5–8% to sell) regardless of how favorable the mortgage rate is. If there is any realistic chance you move within 5 years — for career, relationship, or lifestyle reasons — renting is the financially dominant choice at any mortgage rate. Run the comparison at your realistic stay duration first, before adjusting any other input. A 3-year horizon and a 15-year horizon produce opposite recommendations from identical market inputs.
Disclaimer: This tool provides estimates for educational purposes only and does not constitute financial, mortgage, or real estate advice. Projections assume constant rates of appreciation and rent increase, which real markets do not guarantee. Calculations exclude property taxes, maintenance costs, HOA fees, insurance, PMI, and closing costs which materially affect the true cost of ownership. Consult a licensed mortgage professional or financial advisor before making housing decisions.
Frequently Asked Questions
Q: What annual rent increase percentage should I use?
Use 3–4% for a typical US market based on BLS Rent CPI historical averages. In high-demand cities — New York, San Francisco, Austin — use 5–7% to reflect recent market trends. In slower markets or rent-controlled areas, use 2–3%. Your personal rent history is the best predictor: average your last 3 annual increases for the most accurate input.
Q: Does buying always win financially over long enough time horizons?
In most markets, yes — but duration is the dominant variable, not the mortgage rate or home price. Transaction costs of buying and selling total 8–14% of home value. A home needs enough appreciation to cover those costs before equity becomes real. At 3% annual appreciation, that recovery takes approximately 4–6 years. Before that point renting preserves capital; after it, buying compounds equity.
Q: What home appreciation rate should I use?
The FHFA House Price Index shows a national average of 3.8% annually from 1991–2023. Use 3–4% for a nationally representative estimate. For specific metro areas, the FHFA publishes city-level appreciation data. Do not use recent 2020–2022 appreciation rates of 15–20% — these were anomalous pandemic-era figures, not sustainable long-term baselines for planning purposes.
Q: Why does the down payment percentage matter so much?
Down payments below 20% require private mortgage insurance (PMI) — typically 0.5–1.5% of the loan amount annually — which adds $100–$300 per month to buying costs with no equity benefit. A $400,000 home with 10% down incurs approximately $1,800–$5,400 in annual PMI until the loan-to-value ratio reaches 80%. This cost significantly delays the rent vs buy breakeven point compared to a 20% down payment scenario.
Q: What costs does this tool not include that I should factor in?
The tool compares rent against mortgage payment and appreciation. It does not include property taxes (typically 1–2% of home value annually), homeowner's insurance (0.5–1%), maintenance (1–2% of home value annually), HOA fees where applicable, closing costs (2–5% of purchase price), or PMI. Adding these typically increases the true annual cost of ownership by $8,000–$20,000 on a $400,000 home and extends the breakeven point by 2–4 years.
Q: Is the down payment lost money if I choose to rent instead?
No — if you rent, the down payment remains investable capital. The opportunity cost of the down payment is what it would grow to if invested in an index fund instead of housing equity. A $60,000 down payment invested at 7% annual return over 10 years becomes approximately $118,000. This opportunity cost favors renting when home appreciation is below equity market returns — typically in low-appreciation markets or short holding periods.
Q: At what mortgage rate does renting become permanently better than buying?
There is no universal rate threshold — it depends on rent level, appreciation, and duration together. However, research from the National Association of Realtors and NBER consistently shows that when monthly mortgage payment exceeds 1.5× the equivalent monthly rent for the same property, the financial case for buying requires a staying duration above 10 years to break even. Enter your specific numbers to find your personal crossover point.